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Dissertation Su ubmitted to the Mumbai U University
MA ASTERS IN FINANCIAL SE ERVICES OF MANAGEMENT (M.F.S S.M.) Submitt ted by:
HEM MANGI KHOPK KAR
(Roll N No.08)
Project t Guide
CMA C (DR R) KINNA ARRY TH HAKKAR R
Alkesh Dinesh Mody M Institute e for Financia l and Manage ement Studie es, Maharasht tra
University o of Mumbai
HEMANGI KHOPKAR, TYMFSM Student of Alkesh Dinesh Mody Institute for Financial and Management Studies, hereby declare that I have completed the project titled Technical analysis during the academic year 2012-2013.The report work is original and the information/data included in the report is true to the best of my Knowledge. Due credit is extended on the work of Literature/Secondary Survey by endorsing it in the Bibliography as per prescribed format.
Signature of the Student with Date
In the first place, I thank DR. KINNERI THAKKAR for having given me her valuable guidance for the project. Without her help it would have been impossible for me to complete the project. I Would like to do special thanks here to our last semester sir CHIRAG SHAH who taught us Technical Analysis. It was his knowledge , which encouraged me to choose this subject and successfully complete this project
Place: Mumbai Date:
Signature of the student
Professor DR. KINNERI THAKKAR hereby certify that HEMANGI KHOPKAR, TYMFSM Student of Alkesh Dinesh Mody Institute for Financial and Management Studies has completed a project titled “Technical analysis” in the academic year 2012-2013. The work of the student is original and the information included in the Project is true to the best of my Knowledge.
Signature of Guide with Date
(PROF. KINNERI THAKKAR)
TA RSI OHLC MACD CCI MA SMA EMA PREV ADX MFI BB LOD HOD ISIN MKT. CAP EPS GRP CR. PS FII DII NPM VAR TCS INFY TECHNICAL ANALYSIS RELATIVE STRENGTH INDEX OPEN,HIGH,LOW,CLOSE MOVING AVERAGE CONVERGENCE/DIVERGENCE COMMODITY CHANNEL INDEX MOVING AVERAGE SIMPLE MOVING AVERAGE EXPONENTIAL MOVING AVERAGE PREVIOUS AVERAGE DIRECTIONAL INDEX MONEY FLOW INDEX BOLINGER BAND LOW OF THE DAY HIGH OF THE DAY INTERNATIONALSECURITIES IDENTIFICATION NUMBER MARKET CAPITAL EARNING PER RATIO GROUP CRORE PARABOLIC SAR FOREIGN INSTITUTIONAL INVESTOR DOMESTIC INSTITUTIONAL INVESTORS NATIONAL PUBLIC MEDIA VALUE ADDED RESELLER TATA CONSULTANCY SERVICES INFOSYS LIMITED
TABLE OF CONTENTS
SR. NO. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 PARTICULARS DEFINITION BRIEF HISTORY INTRODUCTION TECHNICAL ANALYSIS VERSUS FUNDAMENTAL ANALYSIS THE DIFFERENCES CHARTS VS. FINANCIAL STATEMENTS ASSUMPTIONS LIMITATION ADVANTAGE OF TECHNICAL ANALYSIS DISADVANTAGE OF TECHNICAL ANALYSIS 5 EVILS OF TECHNICAL ANALYSIS STRENGTHS AND WEAKNSS OF TECHNICAL ANALYSIS IMPORTANCE OF TRENDS SUPPORT AND RESISTANCE IMPORTANCE OF VOLUME INTRO TO STOCK CHARTS HEAD AND SHOULDERS DOUBLE TOPS AND BOTTOMS GAP THEORY CANDLE CHARTS MAJOR INDICATORS MAJOR OSCILLATORS TRADING STRATEGIES DOW THEORY TRADING PSYCHOLOGY AND RISK MANAGEMENT GOLDEN RULES FOR TRADERS IMPORTANCE OF DISCIPLINE IN TRADING TECHNICAL ANALYSIS OF INFOSYS LTD AND TCS CHARTS OF SECURITIES RESEARCH OF SECURITIES IN DETAIL ONE YEAR RESEARCH OF INFOSYS LTD ONE YEAR RESEARCH OF TCS FIVE YEARS RESEARCH OF SECURITIES COMPARISON BETWEEN INFOSYS LTD AND TCS BIBLIOGRAPHY PAGE NO. 7 8-9 10-11-12 13 14-17 18-20 21 22-23 24-25 26-27 28-32 33-37 38-41 42-43 44-5 51-60 61-68 69-73 74-99 100-113 114-134 135-141 142-150 151-155 156-163 164-167 168-171 172-175 176-219 220-230 231-241 242-245 246 247
“DEFINITION OF “TECHNICAL ANALYSIS”
“Technical analysis is the art of identifying market turning points at a relatively early stage”
Technical analysis is a security analysis technique that claims the ability to forecast the future direction of prices through the study of past market data, primarily price and volume
It is probably reasonable to assume that where commerce has flourished in civilizations so have the traders who have paid close attention to prices and their movements. However, rather than dwell upon the wonders of the Phoenician market for olive oil forwards, or the ancient Japanese and Chinese history of rice trading, our story starts with one Charles Dow, inventor of the first stock market index in 1884.
Charles Dow invented point and figure charting after he noticed that by the time important corporate news entered the public domain, the share price had already moved, due not least to insider trading. Therefore he watched the open outcry ‘curb market’, writing down prices in a notebook, looking for clues to trending market action. Finding a page of price changes confusing, not
surprisingly, he decided to plot price action in graphic form. Mr. Dow also wrote a series of articles for the Wall Street Journal in the latter years of the 19th century. This body of work became known as “Dow Theory” and formed the initial basis for what we know as technical analysis today. While we will not dwell on the finer details of Dow Theory in this section, the most important concepts that Mr. Dow recognized were that prices reflect the current balance of supply and demand (i.e. the hopes and fears of investor). And most importantly, an imbalance of supply and demand causes prices to form recognizable trends, up and down.
Certainly, the concept of studying price action was fairly well established by the early 20th century. By the 1940s to 1950s additional pioneers of technical analysis such as Bill Jiler, Robert Edwares, John Magee, Alexander Wheelan and Abe Cohen were making steady progress, not only in the types of charts used to depict trends, but also techniques for analyzing price action.
However the acceleration in technical research techniques commenced in the late 1970s with the introduction of computers. This made it possible for hypotheses and indicators to be calculated and back tested as to their efficacy. While this has greatly expanded the body of theoretical work available on price studies, many seasoned chart readers maintain that at least 90 percent of what they need to know about prices is revealed by the price action alone.
Technical analysis can be defined as a method that attempts to forecast future price trends by the means of analyzing market action. It was established as early as 18th century. However, most of its methods as we know them today were created in the first decades of 20th century. The core idea of technical analysis is that history tends to repeat itself. That is why we can find certain situations in the market that occur regularly. These situations can be discovered by chart analysis and technical indicators, which we can use for our advantage – and that is precisely what technical analysis is trying to do.
There are several approaches to technical analysis – such as the Dow theory, Elliot wave theory, Fibonacci's analysis, cyclical analysis and so on. However, the most commonly used methods can be divided into two major branches – namely chart analysis (also called charting) and statistical approach. With chart analysis, the analyst is trying to find patterns that price creates in the chart and that occur repeatedly. For example, head and shoulders or double bottoms are considered typical chart patterns. As soon as the analyst identifies such a pattern, he can make a trade based on the direction the price should follow based on the type of the pattern.
Another branch of technical analysis is constituted by the statistical techniques, which comprise mostly the study and use of various technical indicators. These indicators are computed from historical market data and are mostly used for forecasting trend reversals or changes in strength of the trend. Many of the indicators yield precise buy and sell signals. There are several kinds of indicators – from the very simple ones like moving averages to the very complicated such as Swing index, for which the mathematical formula is several lines long. Yet, the major drawback of using technical indicators is that they provide too many
trading signals that are often contradicting each other. It is so because different indicators work best in different kind of market (or phase of the trend). In the following articles, explaining various technical indicators will be our primary concern.
In spite of the fact that technical analysis has been used for decades by almost all exchange traders (including major banks and mutual funds), many people (mostly academics) still reject it and criticize it as subjective, random and often also completely redundant. For example, according to the efficient market theory, it should not provide any benefit even if the efficiency of the market was low, because all publicly available information should be already reflected in market price. Many professors still call it a “pseudoscience”.
The truth is that technical analysis is indeed highly subjective. On one hand, it is the case because while studying charts and looking for patterns everyone can see a very different thing. Also, there is a vast array of technical indicators and every analyst uses only a few of her favorite ones and can even adjust or calibrate them differently. Therefore, it is quite common for two technical analysts to reach completely different conclusions for a single market. Nonetheless, similar situations also occur while using fundamental or psychological analysis, so technical analysis is not an exception. Another often mentioned argument against technical analysis is that it is a self-fulfilling prophecy. It is mostly because of trend-following systems used by traders, as well as the automated trading systems (computer programs generating trading orders often based on technical analysis). It is estimated that automated trading systems generate more than 50% of all orders in stock trading. The problem is that the vast majority of these systems is based on exploiting the existing trend, and so they buy when prices are rising and sell when prices are falling. But, when they're buying stocks in an uptrend, they raise the price even further and vice
versa. Thus, such systems contribute to increased volatility in the market and reinforce the current trend. Fortunately, these systems just like the analysts use different indicators and that's why they do not trade identically. Besides, many of these systems are programmed to detect the state when prices are rising or falling too fast and exploit it (for example buying after a steep fall in price). Many traders use similar tactics, so this criticism is not justified, either.
As technical analysis (and especially chart analysis) is highly subjective, its success is highly dependent on how experienced its user is. The more experience an analyst has, the better he can determine the kind of pattern or a possible trend reversal. That's why many traders combine technical analysis with fundamental analysis. In that case, technical analysis is most suitable for planning the entry and exit points for the positions, which especially in futures trading make a difference between profit and loss.
TECHNICAL ANALYSIS VERSUS FUNDAMENTAL ANALYSIS
Fundamental Analysis concerns itself with establishing the value of stocks and other instruments. The fundamental analyst will concern himself with complex inter-relationships of financial statements, demand forecasts, quality of management, earnings and growth, etc. He will then make a judgement on the share, commodity, or other financial instrument, often relative to its sector or market peers and form a judgement whether it is over- or under-valued.
The majority of stock research from brokers or investment banks will be based on company fundamentals. At Investors Intelligence, while we admire much of this work we take a more pragmatic approach; we monitor and analyze the ways in which investors interpret this mass of fundamental data and how they then behave. This behaviour is collectively called sentiment. Our view is that investor sentiment is the single most important factor in determining an instrument’s price.
We believe that technical analysis holds the key to monitoring investor sentiment. Some investors and market “experts” believe that fundamental analysis and technical analysis are mutually exclusive. We disagree. We think they are highly complementary and should work together to tell you what to buy or sell and when to buy or sell. Many successful traders use a combination of fundamental stock selection procedures and technical analysis timing filters with excellent results.
THE DIFFERENCES CHARTS VS. FINANCIAL STATEMENTS
At the most basic level, a technical analyst approaches a security from the charts, while a fundamental analyst starts with the financial statements. (For further reading, see Introduction to Fundamental Analysis and Advanced Financial Statement Analysis.) By looking at the balance sheet, cash flow statement and income statement, a fundamental analyst tries to determine a company's value. In financial terms, an analyst attempts to measure a company's intrinsic value. In this approach, investment decisions are fairly easy to make - if the price of a stock trades below its intrinsic value, it's a good investment. Although this is an oversimplification (fundamental analysis goes beyond just the financial statements) for the purposes of this tutorial, this simple tenet holds true. Technical traders, on the other hand, believe there is no reason to analyze a company's fundamentals because these are all accounted for in the stock's price. Technicians believe that all the information they need about a stock can be found in its charts.
Time Horizon Fundamental analysis takes a relatively long-term approach to analyzing the market compared to technical analysis. While technical analysis can be used on a timeframe of weeks, days or even minutes, fundamental analysis often looks at data over a number of years. The different timeframes that these two approaches use is a result of the nature of the investing style to which they each adhere. It can take a long time for a company's value to be reflected in the market, so when a fundamental analyst estimates intrinsic value, a gain is not realized until the stock's market price rises to its "correct" value. This type of investing is called value investing and assumes that the short-term market is wrong, but that the price of a particular stock will
correct itself over the long run. This "long run" can represent a timeframe of as long as several years, in some cases. (For more insight, read Warren Buffett: How He Does It and What Is Warren Buffett's Investing Style?) Furthermore, the numbers that a fundamentalist analyzes are only released over long periods of time. Financial statements are filed quarterly and changes in earnings per share don't emerge on a daily basis like price and volume information. Also remember that fundamentals are the actual characteristics of a business. New management can't implement sweeping changes overnight and it takes time to create new products, marketing campaigns, supply chains, etc. Part of the reason that fundamental analysts use a long-term timeframe, therefore, is because the data they use to analyze a stock is generated much more slowly than the price and volume data used by technical analysts.
Trading Versus Investing Not only is technical analysis more short term in nature that fundamental analysis, but the goals of a purchase (or sale) of a stock are usually different for each approach. In general, technical analysis is used for a trade, whereas fundamental analysis is used to make an investment. Investors buy assets they believe can increase in value, while traders buy assets they believe they can sell to somebody else at a greater price. The line between a trade and an investment can be blurry, but it does characterize a difference between the two schools.
The Critics Some critics see technical analysis as a form of black magic. Don't be surprised to see them question the validity of the discipline to the point where they mock its supporters. In fact, technical analysis has only recently begun to enjoy some mainstream credibility. While most analysts on Wall Street focus on the fundamental side, just about any major brokerage now employs technical analysts as well.
Much of the criticism of technical analysis has its roots in academic theory specifically the efficient market hypothesis (EMH). This theory says that the market's price is always the correct one - any past trading information is already reflected in the price of the stock and, therefore, any analysis to find undervalued securities is useless. There are three versions of EMH. In the first, called weak form efficiency, all past price information is already included in the current price. According to weak form efficiency, technical analysis can't predict future movements because all past information has already been accounted for and, therefore, analyzing the stock's past price movements will provide no insight into its future movements. In the second, semi-strong form efficiency, fundamental analysis is also claimed to be of little use in finding investment opportunities. The third is strong form efficiency, which states that all information in the market is accounted for in a stock's price and neither technical nor fundamental analysis can provide investors with an edge. The vast majority of academics believe in at least the weak version of EMH, therefore, from their point of view, if technical analysis works, market efficiency will be called into question. There is no right answer as to who is correct. There are arguments to be made on both sides and, therefore, it's up to you to do the homework and determine your own philosophy.
Can They Co-Exist? Although technical analysis and fundamental analysis are seen by many as polar opposites - the oil and water of investing - many market participants have experienced great success by combining the two. For example, some fundamental analysts use technical analysis techniques to figure out the best time to enter into an undervalued security. Oftentimes, this situation occurs when the security is severely oversold. By timing entry into a security, the gains on the investment can be greatly improved
Alternatively, some technical traders might look at fundamentals to add strength to a technical signal. For example, if a sell signal is given through technical patterns and indicators, a technical trader might look to reaffirm his or her decision by looking at some key fundamental data. Oftentimes, having both the fundamentals and technicals on your side can provide the best-case scenario for a trade.
ASSUMPTION OF TECHNICAL ANALYSIS
The field of technical analysis is based on three assumptions:
1. Price moves in trends. 2. Price discounts everything. 3. History repeats itself.
1. Prices move in trends The first and also the key premise of technical analysis is that asset prices tend to move in trends. Three kinds of trends exist- the upward trend (bullish), the downward trend (bearish) and no trend (sideway move). In case of a sideway move, prices oscillate in a narrow range for some time, whereas their future direction is hard to determine. According to technical analysis, a trend is in effect until it reverses. That's why most traders focus on trading the market at the time of trend reversals, as it is at that time when the biggest price moves occur, which means high potential for profitable trades.
However, there is not only one trend in a stock chart. On the contrary, there are several trends in one chart. For example, in a monthly chart we can find a longterm trend, which actually consists of many smaller trends. In a daily chart we can find a daily trend, in an hour chart an hour trend and in a minute chart a minute trend. Most of technical analysts recommend trading in the direction of the trend. They usually start by determining direction of the long-term trend and then gradually move to lower timeframes, whereas the key trend to watch should be the one corresponding to the time horizon during which we want to have the position open.
2. Price discounts everything Technical analysis is a kind of market analysis that compared to the fundamental analysis does not require constant monitoring of vast amount of information from various sources. On the contrary, it is based on the belief that all relevant information is already reflected in the market price and any new information will impact the price as soon as they are released. That's why for the purpose of conducting technical analysis, all you need to watch is market price and volume traded. In case of futures, you need to watch for another figure – the open interest indicator (the amount of currently outstanding contracts in the market). Hence, it is completely sufficient for a purely technical trader to have only a data feed consisting of market price and volume traded in real time, which is usually already included in a broker's basic fee. We can say that while a fundamental analyst attempts to determine or at least estimate a company's intrinsic value, a technical analyst does not concern himself with this value at all. His only concern is whether the price of its shares will go up or down in the future. But, as opposed to a fundamental analyst he does not care why this happens. Thus, a technical trader does not have to subscribe to expensive information services such as Reuters or Bloomberg, and hence he can save a lot of money. Moreover, technical analysis can be applied practically to every market – to equities, bonds, commodity futures, currencies, etc. Therefore, a technical analyst has a substantial advantage over his fundamentally oriented peer, because he can always choose to trade the market in which there is currently most action, as he is not bound to a particular market.
3. History repeats itself Because all the concepts of technical analysis are based on studying historical data, validity of this premise is crucial. Several studies have shown that particular events occur repeatedly in the market. These events are reflected in market
price, which is again the primary source of information for particular indicators and chart analysis. Many of them are based on patterns in human psychology that do not change. For example, one such situation is regularly visible when resistance (a psychological bareer limiting the price rise on the upside) is broken. If the price breaks above the resistance level, traders who have opened long positions cheer, but at the same time they regret that they didn't buy more. Traders with short positions realize they are on the wrong side of the trend and hope that the price will drop back to the level of former resistance, so they could exit their positions without incurring losses. Traders that have not yet committed any money in the market are waiting for the price to drop towards the level of former resistance as well, in order to be able to initiate long positions and capitalize on the upward trend, while buying cheaply. Because all these groups intend to buy near the level where the resistance was, this level becomes a support for price – prices will not fall under this level because of high demand. Technical analysis includes many such concepts.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. • No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading model. •
One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. in addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results.
There are numerous other factors related to the markets in general or to the implementation of any specific trading model which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results. Past performance is not necessarily indicative of future results. The risk of loss exists in trading.
Our model ignores the adverse tax consequences associated with short-term capital gains. Tax implications are a critical component of any investment strategy. Therefore, depending on the strategy you choose to implement, it is possible that any trading activity could result in a taxable event and result in lower investment return.
ADVANTAGES OF TECHNICAL ANALYSIS
• Technical analysis focuses on price movement The primary focus of technical analysis is on the movement of prices. Charts show how prices are moving (or not moving), when prices are trending, and the strength of those trends. Volume, oscillators and momentum give a clearer picture of market action. And this information can be obtained at a glance. Unlike fundamentalists, technicians do not use economic reports that analyze the demand for a currency.
• Trends are easily found Taking a look at a moving average line quickly displays a price that is trending or stuck in a range. Whether it is up, down, or sideways, a chart can quickly display a currency that is exhibiting a trend. Trends are critical to technicians because a currency is likely to continue moving in the direction of the trend. Charts show them clearly and quickly.
• Patterns are easily identified One of the basic tenets of market action is that it repeats itself in clear, unmistakable patterns. Using charts helps the trader to find patterns and predict price movements based on these patterns. Like star constellations, patterns can be complex and complicated. Head-and-shoulders patterns, rounding tops and bottoms, ascending and descending triangles, and double and triple tops are proven patterns that many currency prices will follow. Hence, they have strong predictive powers. They can be impossible to detect without using a chart.
• Charting is quick and inexpensive Computers have relieved us from the burden of performing complex mathematical operations. The Internet has a wealth of different technical indicators available that can help the trader to make more profitable and more reliable trades. Many brokers offer these types of technical indicators to their clients as part of their package. Technical analysis is less time consuming and less costly than fundamental analysis. It can be performed in less than five minutes and the services are very often offered for free or at a nominal cost.
• Charts provide a wealth of information Charts and indicators can provide a huge amount of information in only a few moments. Trends are easily found. Support and resistance levels are quickly identified. Momentum, volatility, and trading patterns appear quickly and easily. There are more than fifty kinds of indicators and they each provide information on different aspect of how a currency is moving. This information is critical to technicians to make sound and profitable trades. Charts tell a story about the personality and price movement of a currency. The story can be complex with many different plots and twists or quite simple with only a few characters and single narrative. Charts are the same way. They can provide only the most basic information on a trend or support and resistance. However, they go much deeper to provide information on the strength of a trend, how momentum is building, and whether formations are developing that the can be traded.
THE DISADVANTAGES OF TECHNICAL ANALYSIS
• The first problem is that it is theoretic and data intensive, while pattern overfitting can be a problem, its rules are often difficult to interpret, and the statistical testing is cumbersome. •
The second problem facing technical analysis relates to overuse. As the popularity of technical analysis has increased, more and more investors are looking at the same charts and coming to the same conclusions. When too many people use the same system the likelihood of them being proved wrong increases. This is what may be starting to happen now as a result of the widespread acceptance of computerized chart analysis. Indeed there is evidence suggesting that many disillusioned investors who embraced the procedure so enthusiastically a few years ago are now discarding it.
Thirdly, technical analysis is very much a function of extrapolation i.e. based on the assumption that what has happened in the immediate past will continue into the future. A trend remains in existence until proved otherwise. The danger inherent in such an approach becomes evident if one accepts that 'trends don't last forever' - the longer one has been in existence, the nearer it gets to its ultimate turning point. When, for instance, prices have been rising for a prolonged period, most investors come to believe that further price rises are inevitable, and vice versa. This is the reason why the ultimate turning point is so often missed - they recognize a new trend only sometime after the old one has expired, by which time a good deal of the profit potential may have been lost.
Lastly, a further disadvantage of only using technical analysis is that one becomes far removed from the original objective of a stock market. The idea is to invest in businesses. By buying a share you gain shared ownership of a business. Most pure technical analysts have no idea what business their companies are involved in, or how well these businesses are doing.
5 EVILS OF TECHNICAL ANALYSIS
1. Misleading Concept of Technical Analysis: The first thing we are misguided by the Technical Analysis is the core principal of Technical Analysis which define history repeat its self. History often repeats its self but not all the time. Some time we see it never repeat or sometime it takes long time to be repeated. So investors or traders should take a look of this misleading concept before use of Technical Analysis.
2. Partial use Of Technical Analysis: If you are familiar with phrase of “A little knowledge is a dangerous thing” This is the most appropriate phrase for investors and traders in financial market. We see investor and trader learn a little part of technical analysis and use it and at the end result the partial uses of technical analysis fail most of the case of financial market. Never try to use your partial knowledge of Technical Analysis cause its drop down you most of times of your investment life cycle.
3. Misunderstand of Technical Indicators Direction: Many investors and traders are trapped by the direction of technical indicators. As many of the technical indicators doest work in most of the case its give false buy or sell signal. The technical indicators have been created on the basic concept of market movement and mathematical calculation. So investor or trader who wants to use this sort of indicators they should have the core concept and calculation of that indicator and use it after analysis of present market movement. 4. Unconsciously uses of Technical Analysis without a System: Technical Analysis is a broad concept and a systematic approach of determining the future price movement. Any investors or traders cannot use in unconsciously. He may have good knowledge on technical analysis but if they do not use it in appropriate way
it may be bring a dangerous situation. Technical Analysis can only work with long term value of your investment when you use it in a systematic way. The systematic way refers to control emotions or psychological development and an idea of your portfolio management.
5. Certain Powerful Control Fail the Technical Analysis: we are very much familiar with market maker who can manipulates market any time during trading session. Market makers are the powerful market controllers who always trade against most of the traders with huge volume of trade. Technical Analysis doest work in case of market makers handling as market doest moves in a certain level when they enter into the market. So when we will use technical analysis we should keep it mind of their powerful control of Market maker.
STRENGTHS AND WEAKNESS OF TECHNICAL ANALYSIS
Strengths of Technical Analysis
Not Just for stocks Technical analysis has universal applicability. It can be applied to any financial instrument - stocks, futures and commodities, fixed-income securities, forex, etc
Focus on price Fundamental developments are followed by price movements. By focusing only on price action, technicians focus on the future. The price pattern is considered as a leading indicator and generally leads the economy by 6 to 9 months. To track the market, it makes sense to look directly at the price movements. More often than not, change is a subtle beast. Even though the market is prone to sudden unexpected reactions, hints usually develop before significant movements. You should refer to periods of accumulation as evidence of an impending advance and periods of distribution as evidence of an impending decline.
Supply, demand, and price action Technicians make use of high, low and closing prices to analyze the price action of a stock. A good analysis can be made only when all the above information is present Separately, these will not be able to tell much. However, taken together, the open, high, low and close reflect forces of supply and demand.
Support and resistance Charting is a technique used in analysis of support and resistance level. These are trading range in which the prices move for an extended period of time, saying that forces of demand and supply are deadlocked. When prices move out of the
trading range, it signals that either supply or demand has started to get the upper hand. If prices move above the upper band of the trading range, then demand is winning. If prices move below the lower band, then supply is winning.
Pictorial price history A price chart offers most valuable information that facilitates reading historical account of a security’s price movement over a period of time. Charts are much easier to read than a table of numbers. On most stock charts, volume bars are displayed at the bottom. With this historical picture, it is easy to identify the following: • Market reactions before and after important events • Past and present volatility • Historical volume or trading levels • Relative strength of the stock versus the index.
Assist with entry point Technical analysis helps in tracking a proper entry point. Fundamental analysis is used to decide what to buy and technical analysis is used to decide when to buy. Timings in this context play a very important role in performance. Technical analysis can help spot demand (support) and supply (resistance) levels as well as breakouts. Checking out for a breakout above resistance or buying near support levels can improve returns. First of all you should analyze stock’s price history. If a stock selected by you was great for the last three years has traded fl at for those three years, it would appear that market has a different opinion. If a stock has already advanced significantly, it may be prudent to wait for a pullback. Or, if the stock is trending lower, it might pay to wait for buying interest and a trend reversal.
Weaknesses of Technical Analysis
Analyst bias Technical analysis is not hard core science. It is subjective in nature and your personal biases can be reflected in the analysis. It is important to be aware of these biases when analyzing a chart. If the analyst is a perpetual bull, then a bullish bias will overshadow the analysis. On the other hand, if the analyst is a disgruntled eternal bear, then the analysis will probably have a bearish tilt.
Open to interpretation Technical analysis is a combination of science and art and is always open to interpretation. Even though there are standards, many times two technicians will look at the same chart and paint two different scenarios or see different patterns. Both will be able to come up with logical support and resistance levels as well as key breaks to justify their position. Is the cup half-empty or half-full? It is in the eye of the beholder.
Too late You can criticize the technical analysis for being too late. By the time the trend is identified, a substantial move has already taken place. After such a large move, the reward to risk ratio is not great. Lateness is a particular criticism of Dow Theory.
Always another level Technical analysts always wait for another new level. Even after a new trend has been identified, there is always another “important” level close at hand. Technicians have been accused of sitting on the fence and never taking an unqualified stance. Even if they are bullish, there is always some indicator or some level that will qualify their opinion.
Trader’s remorse An array of pattern and indicators arises while studying technical analysis. Not all the signals work. For instance: A sell signal is given when the neckline of a head and shoulders pattern is broken. Even though this is a rule, it is not steadfast and can be subject to other factors such as volume and momentum. In that same vein, what works for one particular stock may not work for another. A 50-day moving average may work great to identify support and resistance for Infosys, but a 70-day moving average may work better for Reliance. Even though many principles of technical analysis are universal, each security will have its own idiosyncrasies.
TA is also useful in controlling risk It is Technical Analysis only that can provide you the discipline to get out when you’re on the wrong side of a trade. The easiest thing in the world to do is to get on the wrong side of a trade and to get stubborn. That is also potentially the worst thing you can do. You think that if you ride it out you’ll be okay. However, there will also be occasions when you won’t be okay. The stock will move against you in ways and to an extent that you previously found virtually unimaginable.
It is more important to control risk than to maximize profits! There is asymmetry between zero and infinity. What does that mean? Most of us have very finite capital but infinite opportunities because of thousands of stocks. If we lose an opportunity, we will have thousands more tomorrow. If we lose our capital, will we get thousands more tomorrow? It is likely that we will not. We will also lose our opportunities. Our capital holds more worth to us than our opportunities because we must have capital in order to take advantage of tomorrow’s opportunities. It is more important to control risk than to maximize profits! Technical Analysis, if practiced with discipline, gives you specific
parameters for managing risk. It’s simply supply and demand. Waste what’s plentiful, preserve what’s scarce. Preserve your capital because your capital is your opportunity. You can be right a thousand times, become very wealthy and then get wiped out completely if you manage your risk poorly just once. One last time: That is why it is more important to control risk than to maximize profits!
TECH HNICAL ANALYSIS: A : IMPORT TANCE OF TRENDS
One of o the most important concepts in technical a analysis is th hat of trend. The meaning in financ ce isn't all th hat different t from the ge eneral defin nition of the term - a tre end is really nothing mo ore than the e general direction in wh hich a security or marke et is headed. Take a look k at the char rt below:
Figure 1 t hard to see that the trend in Figu ure 1 is up. H However, it's not always this It isn't easy to t see a tren nd:
There e are lots of ups and dow wns in this c chart, but there isn't a clear indication of which h direction th his security is headed.
A Mo ore Formal Definition D Unfor rtunately, trends are no ot always e easy to see. In other w words, defining a trend goes well beyond b the obvious. o In a any given ch hart, you will probably n notice that prices p do not t tend to mo ove in a stra ight line in a any direction, but rathe er in a series s of highs an nd lows. In technical t an nalysis, it is the movem ment of the highs and lo ows that co onstitutes a trend. For example, a an uptrend is classified as a series s of higher highs h and hig gher lows, w while a dow wntrend is on ne of lower lows and lo ower highs.
gure 3 Fig e 3 is an exa ample of an uptrend. Po oint 2 in the chart is the e first high, w which Figure is det termined aft ter the pric ce falls from m this point t. Point 3 is s the low th hat is established as the e price falls from the high. For this s to remain an uptrend each successive low must m not fall below the e previous lo owest point t or the tre end is deemed a reversa al.
Types s of Trend -T There are thr ree types of f trend: • • Uptrends Down ntrends
Sidew ways/Horizon ntal Trends As the names im mply, when each succ essive peak k and troug gh is higher r, it's red to as an upward tren nd. If the pe eaks and troughs are getting lower, it's a referr downtrend. When n there is litt tle moveme ent up or dow wn in the pe eaks and troughs, it's a sideways s or horizontal trend. t If you u want to ge et really tech hnical, you m might even say s that a si ideways tren nd is actuall y not a tren nd on its own, but a lack k of a well-d defined tren nd in either direction. In any case, , the market can really y only owhere. trend in these thr ree ways: up p, down or no
Trend d Lengths Along with these three trend d directions, , there are t three trend classificatio ons. A trend of any direc ction can be e classified a as a long-ter rm trend, int termediate t trend or a short-term s trend. In ter rms of the s stock market t, a major trend is gene erally catego orized as one o lasting longer tha an a year. An interm mediate tren nd is consid dered to las st between one and th hree month hs and a ne ear-term trend is anything less th han a month. A long g-term trend d is compo osed of se everal interm mediate tren nds, which often o move a against the d direction of the major trend. If the e major trend is upwa ard and the ere is a dow wnward cor rrection in price movement follow wed by a continuatio on of the uptrend, th he correctio on is dered to be an intermed diate trend. The short-t term trends are compon nents consid of bot th major and intermediate trends. Take a look a Figure 4 t to get a sen nse of how these three trend t length hs might look k.
When n analyzing trends, it is s important t that the c chart is constructed to best reflect the type of trend be eing analyze ed. To help p identify lo ong-term trends, weekl ly charts or daily d charts spanning a five-year pe eriod are use ed by chartis sts to get a better idea of the long g-term trend d. Daily data a charts are best used w when analyz zing both intermediate e and short t-term trends. It is als so importan nt to remem mber that the longer th he trend, th he more imp portant it is s; for examp ple, a one-m month trend is not as sig gnificant as a five-year tr rend.
DLINES TREND A tren ndline is a sim mple chartin ng technique e that adds a line to a ch hart to repre esent the trend in the market m or a stock. Draw wing a trendline is as sim mple as draw wing a straight line that follows f a general trend. These lines are used to o clearly show w the trend and are also o used in the e identificatiion of trend reversals. As yo ou can see in i Figure 5, an upward d trendline is drawn at t the lows o of an upward trend. This line repre esents the su upport the st tock has eve ery time it m moves from a high to a low. Notice e how the pr rice is propp ped up by t this support. This type of o trendline helps trader rs to anticipa ate the point at which a stock's price will begin moving upwards again n. Similarly, a downwar rd trendline is drawn a at the highs of the dow wnward tren nd. This line e represents s the resista ance level that a ice moves fr rom a low to o a high. stock faces every time the pri
CHAN NNELS A channel, or cha annel lines, is i the additi on of two p parallel trend dlines that a act as strong g areas of su upport and resistance. r T The upper tr rendline con nnects a seri ies of highs, , while the lower trendline connect ts a series o of lows. A ch hannel can slope upward, downw ward or sid deways bu t, regardle ess of the direction, the pretation rem mains the same. Trade rs will expe ect a given s security to t trade interp betwe een the two o levels of su upport and r resistance u until it break ks beyond one of the le evels, in whic ch case trad ders can exp ect a sharp move in the e direction o of the break. Along wit th clearly displaying th he trend, ch hannels are mainly use ed to illustrate important areas of support s and resistance.
Figure e6 Figure e 6 illustrate es a descend ding channe el on a stock chart; the e upper tren ndline has be een placed on the highs and the lo ower trendli ine is on the e lows. The price has bo ounced off of o these line es several tim mes, and ha as remained range-boun nd for severa al months. As A long as th he price doe es not fall be elow the low wer line or m move beyon nd the upp per resistance, the ran nge-bound downtrend is expecte ed to contin nue. The Im mportance of o Trend It is im mportant to be able to understand u a and identify trends so th hat you can t trade with rather r than against them. Two imp portant sayings in techn nical analysi is are "the trend t is your r friend" and d "don't buc ck the trend," illustrating how impo ortant trend analysis is fo or technical traders.
TECH HNICAL ANALYSIS: A : SUPPOR RT AND RE ESISTANC CE
Once you understand the concept of a t trend, the next major concept is th hat of suppo ort and resistance. You u'll often h hear technic cal analysts talk about t the ongoing battle be etween the bulls b and the e bears, or t the struggle between bu uyers and) and sellers (supply y). This is re evealed by t the prices a security se eldom (dema moves above (res sistance) or below b (supp port).
Figure 1 n Figure 1, support s is th vel through which a sto ock or As you can see in he price lev et seldom fa alls (illustrat ted by the blue arrows s). Resistanc ce, on the o other marke hand, is the price e level that a stock or m market seldom surpasse es (illustrate ed by the re ed arrows).
Why Does D it Happen? These support and d resistance levels are se een as impo ortant in terms of marke et psycholog gy and supp ply and dem mand. Support and resist tance h a lot of tra aders are willing to buy the stock (in the levels are the levels at which case of o a support) ) or sell it (in n the case of f resistance) ). When thes se trend line es are broken, the sup pply and demand and d the psychology beh hind the st tock's movements is tho ought to hav ve shifted, in which cas se new level ls of support t and resista ance will like ely be established.
Round d Numbers and Suppor rt and Resist tance One ty ype of unive ersal suppor rt and resista ance that te ends to be seen across s a large nu umber of se ecurities is r round numb bers. Round numbers n like e 10, 20, 35, , 50, 100 and d 1,000 tend d be importa ant in suppo ort and resistance levels becau se they often repres sent the m major psychological tur rning points s at which many trad ders will make buy or r sell ge amounts o of stock onc ce the price s starts decisions. Buyers will often purchase larg to fall l toward a major m round number suc ch as $50, w which makes s it more dif fficult for sh hares to fall below the level. On th he other han nd, sellers s start to sell off a stock as it moves toward a ro ound numbe er peak, making it diffic cult to move e past this upper level as a well. It is the increas sed buying a and selling p pressure at t these levels that makes s them important points s of support and resistan nce and, in m many cases, , major psychological po oints as well. .
Role Reversal R Once a resistan nce or suppo ort level is b broken, its ro ole is revers sed. If the price falls be elow a supp port level, th hat level wi ill become r resistance. I If the price rises above a resistanc ce level, it w will often be ecome support. As the price el of support t or resistanc ce, it is thou ught that sup pply and dem mand moves past a leve has sh hifted, causing the breached level t to reverse it ts role. For a true revers sal to occur, , however, it t is importan nt that the p price make a strong mov ve through e either the su upport or res sistance.
Figu re 2 xample, as you y can see e in Figure 2 2, the dotted d line is sho own as a lev vel of For ex resista ance that has prevente ed the price e from head ding higher on two previous occasions (Points 1 and 2). Ho owever, onc ce the resistance is brok ken, it becom mes a
level of support (shown by y Points 3 a and 4) by propping up the price e and m heading lower again. preventing it from Many traders who o begin using technical a analysis find d this concep pt hard to be elieve d realize e that this phenomeno on occurs ra ather freque ently, even with and don't some of the most t well-known companie s. For example, as you can see in F Figure s phenomenon is eviden nt on the Wa al-Mart Store es Inc. (WMT T) chart betw ween 3, this 2003 and 2006. Notice N how the t role of th he $51 level l changes fro om a strong level of sup pport to a lev vel of resista ance.
Figure 3 In alm most every case, c a stoc ck will have both a leve el of support and a lev vel of resista ance and will trade in th his range as it bounces between the ese levels. T This is most often seen when a stoc ck is trading g in a genera ally sideway ys manner a as the essive peaks s and troug ghs, testing g resistance e and price moves through succe ort. suppo The Im mportance of o Support and a Resistan nce Support and resistan nce analysis is an impor rtant part of f trends bec cause it can be used to make trading decisions s and identify when a trend is reversing. r F For example e, if a trad der identifie es an impor rtant level of o resistanc ce that has been teste ed several t times but n never broken, he or she e may decid de to take pr rofits as the e security moves toward d this point because it is s unlikely that it will mov ve 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 a price 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.
TECH HNICAL ANALYSIS: A : IMPORT TANCE OF VOLUME E
What is Volume? ? Volume is simply s the n number of sh hares or con ntracts that t trade over a given period of time, usually a day. The higher the vo olume, the more active e the securit ty. To deter rmine the m movement o of the volum me (up or do own), chartists look at the t volume bars b that ca n usually be e found at th he bottom o of any chart. Volume bars illustrate how many s shares have traded per period and show trends s in the same way that prices p do.
Why Volume V is Important Volume V is an n important aspect of t technical analysis becau use it is used d to confirm trends and chart patterns. Any price movement up ronger, mor or dow wn with rela atively high volume is s seen as a str re relevant m move than a similar mo ove with we eak volume. Therefore, if you are lo ooking at a large price movement, you should also examin ne the volum me to see wh hether it tell ls the e, that a sto ock jumps 5 5% in one t trading day after same story. Say, for example owntrend. Is this a sign o of a trend reversal? This is where vo olume being in a long do helps traders. If volume is high during g the day re elative to th he average daily me, it is a sign n that the re eversal is pro obably for re eal. On the o other hand, if the volum volum me is below average, a the ere may not be enough conviction t to support a true trend reversal. me should move m with th he trend. If prices are m moving in a an upward trend, Volum volum me should in ncrease (and d vice versa a). If the pre evious relationship betw ween
volume and price movements starts to deteriorate, it is usually a sign of weakness in the trend. For example, if the stock is in an uptrend but the up trading days are marked with lower volume, it is a sign that the trend is starting to lose its legs and may soon end. When volume tells a different story, it is a case of divergence, which refers to a contradiction between two different indicators. The simplest example of divergence is a clear upward trend on declining volume.
Volume and Chart Patterns The other use of volume is to confirm chart patterns. Patterns such as head and shoulders, triangles, flags and other price patterns can be confirmed with volume, a process which we'll describe in more detail later in this tutorial. In most chart patterns, there are several pivotal points that are vital to what the chart is able to convey to chartists. Basically, if the volume is not there to confirm the pivotal moments of a chart pattern, the quality of the signal formed by the pattern is weakened.
Volume Precedes Price Another important idea in technical analysis is that price is preceded by volume. Volume is closely monitored by technicians and chartists to form ideas on upcoming trend reversals. If volume is starting to decrease in an uptrend, it is usually a sign that the upward run is about to end. Now that we have a better understanding of some of the important factors of technical analysis, we can move on to charts, which help to identify trading opportunities in prices movements.
TECH HNICAL ANALYSIS: A : INTRO T TO STOCK K CHARTS S
In technical analy ysis, charts are similar to o the charts that you see e in any bus siness setting. A chart is s simply a graphical g rep presentation n of a series s of prices o over a set tim me frame. Fo or example, a chart may y show a sto ock's price m movement o over a one-year period, where each point on th he graph rep presents the e closing pric ce for each day d the stock is traded:
Figure 1 e 1 provides an example e of a basic chart. It is a representa ation of the price Figure movements of a stock s over a 1.5 year pe eriod. The b bottom of th he graph, run nning horizo ontally (x-ax xis), is the date or time e scale. On t the right ha and side, run nning vertically (y-axis), the price of o the securi ty is shown. . By looking at the grap ph we see th hat in Octob ber 2004 (P Point 1), the e price of this stock was around $ $245, where eas in June 2005 2 (Point 2), 2 the stock k's price is ar round $265. This tells us s that the stock has risen between October O 200 04 and June 2 2005.
Chart Properties There e are several things that you should be aware o of when look king at a cha art, as these factors can affect the information i vided. They include the time that is prov cale and the price point p properties u used. scale, the price sc
The Time Scale The time scale refers to the range of dates at the bottom of the chart, which can vary from decades to seconds. The most frequently used time scales are intraday, daily, weekly, monthly, quarterly and annually. The shorter the time frame, the more detailed the chart. Each data point can represent the closing price of the period or show the open, the high, the low and the close depending on the chart used. Intraday charts plot price movement within the period of one day. This means that the time scale could be as short as five minutes or could cover the whole trading day from the opening bell to the closing bell. Daily charts are comprised of a series of price movements in which each price point on the chart is a full day’s trading condensed into one point. Again, each point on the graph can be simply the closing price or can entail the open, high, low and close for the stock over the day. These data points are spread out over weekly, monthly and even yearly time scales to monitor both short-term and intermediate trends in price movement. Weekly, monthly, quarterly and yearly charts are used to analyze longer term trends in the movement of a stock's price. Each data point in these graphs will be a condensed version of what happened over the specified period. So for a weekly chart, each data point will be a representation of the price movement of the week. For example, if you are looking at a chart of weekly data spread over a five-year period and each data point is the closing price for the week, the price that is plotted will be the closing price on the last trading day of the week, which is usually a Friday. The Price Scale and Price Point Properties The price scale is on the right-hand side of the chart. It shows a stock's current price and compares it to past data points. This may seem like a simple concept in that the price scale goes from lower prices to higher prices as you move along the scale from the bottom to the top. The problem, however, is in the structure of the scale itself. A scale can
either r be constru ucted in a li inear (arithm metic) or lo ogarithmic w way, and bo oth of these options are available on n most chart ting services s.
If a pr rice scale is constructed d using a line ear scale, th he space bet tween each price point (10, 20, 30, 40) is separ rated by an equal amou unt. A price move from 10 to me distance on the chart t as a move from 40 to 5 50. In 20 on a linear scale is the sam other words, the price scale e measures moves in ab bsolute term ms and does not show the effects of o percent change.
If a pr rice scale is in logarithm mic terms, th hen the distance betwe een points w will be equal in terms of o percent change. c A p price change e from 10 t to 20 is a 1 100% ase in the price p while a move from m 40 to 50 is only a 25 5% change, even increa thoug gh they are represente ed by the s same distan nce on a lin near scale. On a logarithmic scale, , the distanc ce of the 10 00% price ch hange from 10 to 20 will not e same as th he 25% chan nge from 40 to 50. In this case, the move from 10 to be the 20 is represented r by a larger space one t the chart, wh hile the mov ve from 40 t to 50, is rep presented by b a smaller space because, perc centage-wise e, it indicat tes a smalle er move. In Figure 2, the t logarithm mic price sc cale on the right leaves the same amount of space s betwe een 10 and 2 20 as it does between 20 0 and 40 bec cause these both repres sent 100% in ncreases.
Techn nical Analysis: Chart Ty ypes There are four ma ain types of f charts tha at are used by investor rs and traders depend ding on the informatio on that they y are seekin ng and their r individual skill levels. The chart ty ypes are: th he line chart t, the bar ch hart, the can ndlestick chart and the point and f figure chart. In the follo owing sectio ons, we will focus on the e S&P 500 Index during g the period of January 2006 throug gh May 200 06. Notice ho ow the data a used to cr reate the charts is the s same, but th he way the data d is plotte ed and show wn in the cha arts is differe ent.
ur charts is s the line c chart becau use it Line Chart The most basic of the fou repres sents only th he closing pr rices over a set period o of time. The line is forme ed by conne ecting the closing prices s over the t time frame. . Line charts s do not pro ovide visual information n of the trad ding range fo or the individual points such as the high, low an nd opening prices. How wever, the clo osing price is often cons sidered to be the ared to the high and low most important price p in stock k data compa w for the day y and this is why it is the e only value used in line e charts.
Figure 1: A line chart Bar Charts -The bar b chart exp pands on th he line chart by adding s several more key s of informa ation to eac ch data poin nt. The char rt is made u up of a series of pieces vertical lines that represent each e data po oint. This ver rtical line rep presents the e high and lo ow for the trading perio od, along wit th the closin ng price. The e close and open are re epresented on o the vertic cal line by a horizontal d dash. The op pening price e on a
bar ch hart is illustr rated by the e dash that iis located on n the left sid de of the ve ertical bar. Conversely, C the t close is represented d by the das sh on the right. Genera ally, if the le eft dash (op pen) is lowe er than the right dash (close) then n the bar w will be shade ed black, rep presenting an n up period for the stock, which me eans it has ga ained value. . A bar that t is colored red signals that the sto ock has gon ne down in v value over that t period. When this is the case e, the dash o on the right t (close) is lower than the t dash on the left (ope en).
Figure 2: A bar chart
Candlestick Chart ts The candlestick chart t is similar to o a bar chart t, but it diffe ers in the way w that it is s visually constructed. S Similar to th he bar chart t, the candle estick also has h a thin ve ertical line showing s the e period's tr rading range e. The differ rence comes s in the form mation of a wide bar o on the vertic cal line, whic ch illustrate es the differe ence between the open n and close . And, like b bar charts, candlesticks s also rely heavily on the e use of colo ors to explai n what has happened d during the tra ading d. A major problem wit th the cand dlestick colo or configurat tion, howev ver, is period that different sites use dif fferent stan ndards; the erefore, it is importan nt to under rstand the candlestick configuration n used at the chart site you are wo orking with. There are tw wo color con nstructs for days up and d one for da ays that the price falls. When W the price of the stock s is up a and closes above the op pening trade e, the candle estick will usually be white or clea r. If the sto ock has traded down fo or the period d, then the candlestick c will w usually b be red or bla ack, depending on the site. If
the st tock's price has closed above a the p previous day y’s close but t below the day's open, the candles stick will be black or fille ed with the color that is s used to ind dicate an up day.
Fig gure 3: A can ndlestick char rt
p and figu ure chart is n not well know wn or used b by the Point and Figure Charts - The point ge investor but it has had d a long histo ory of use da ating back to the first technical averag traders. This type of o chart reflec cts price mov vements and is not as conc cerned about t time and vo olume in the formulation of the point ts. The point t and figure c chart remove es the noise, or insignifica ant price mov vements, in th he stock, whi ich can distor rt traders' vie ews of the price trends. Th hese types of charts also t ry to neutrali ize the skewin ng effect that t time n chart analys sis. has on
Fig gure 4: A point and figur re chart
When n first looking at a point t and figure chart, you w will notice a series of Xs s and Os. Th he Xs repres sent upward price trend ds and the O Os represent downward price
trends. There are also numbers and letters in the chart; these represent months, and give investors an idea of the date. Each box on the chart represents the price scale, which adjusts depending on the price of the stock: the higher the stock's price the more each box represents. On most charts where the price is between $20 and $100, a box represents $1, or 1 point for the stock. The other critical point of a point and figure chart is the reversal criteria. This is usually set at three but it can also be set according to the chartist's discretion. The reversal criteria set how much the price has to move away from the high or low in the price trend to create a new trend or, in other words, how much the price has to move in order for a column of Xs to become a column of Os, or vice versa. When the price trend has moved from one trend to another, it shifts to the right, signaling a trend change.
Head d and Sho oulders (To op reversal) )
A Hea ad and Shoulders (Top p) is a rever rsal pattern which occurs followin ng an extended uptrend d forms and its complet tion marks a trend reve ersal. The pa attern contains three su uccessive peaks with the e middle pe eak (head) b being the hig ghest and th he two outsi ide peaks (sh houlders) be eing low and d roughly eq qual. The rea action lows of o each peak k can be connected to fo orm support, or a necklin ne
As its name implie es, the head d and should ders reversal pattern is m made up of a left should der, head, right r shoulder, and nec ckline. Other r parts playing a role in n the patter rn are volum me, the breakout, price e target and d support tu urned resistance.
Lets look at each part individually, and then put them together with some example 1. Prior trend: It is important to establish the existence of a prior uptrend for this to be a reversal pattern. Without a prior uptrend to reverse, there cannot be a head and shoulders reversal pattern, or any reversal pattern for that matter. 2. Left shoulder: While in an uptrend, the left shoulder forms a peak that marks the high point of the current trend. It is formed usually at the end of an extensive advance during which volume is quite heavy. At the end of the left shoulder there is usually a dip or recession which typically occurs on low volume. 3. Head: From the low of the left shoulder, an advance begins that exceeds the previous high and marks the top of the head. At this point, in order conform to proper form, prices must come down somewhere near the low of the left shoulder –somewhat lower perhaps or somewhat higher but in any case, below the top of the left shoulder. 4. Right shoulder: The right shoulder is formed when the low of the head advances again. The peak of the right shoulder is almost equal in height to that of the left shoulder but lower than the head. While symmetry is preferred, sometimes the shoulders can be out of whack. The decline from the peak of the right shoulder should break the neckline. 5. Neckline: A neckline can be drawn across the bottoms of the left shoulder, the head and the right shoulder. A breaking of this neckline on a decline from the right shoulder is the final confi rmation and completes the head and shoulder formation. 6. Volume: As the head and shoulders pattern unfolds, volume plays an important role in confi rmation. Volume can be measured as an indicator (OBV, Chaikin Money Flow) or simply by analyzing volume levels. Ideally, but not always, volume during the advance of the left shoulder should be higher than during the advance of the head. These decreases in volume along with new highs that form the head serve as a warning sign. The next warning sign comes when
volum me increases s on the dec cline from th he peak of t the head. Final Confirmation comes s when volume further increases i du uring the dec cline of the r right shoulder. 7. Neckline break k: The head and should ders pattern is said to b be complete e only when the neckline support t is broken. . Ideally, th his should also occur in a convin ncing manne er with an ex xpansion in v volume. 8. Sup pport turned d resistance: Once supp port is broken mon for this same n, it is comm suppo ort level to turn t into re esistance. So ometimes, b but certainly y not always s, the price will w return to o the support break, and d offer a sec cond chance e to sell. 9. Price target: After A breakin ng neckline support, th he projected d price decli ine is found d by measuri ing the dista ance from th he neckline t to the top o of the head. Price target t is calculate ed by subtr racting the above dista ance from th he neckline. Any price target shou uld serve as a rough gu ide, and oth her factors such as previous suppo ort levels sho ould be cons sidered as w well.
K IND chart showing s the e Head and S Shoulders p pattern ABHISHEK
Potato P futur res (MCX) sh howing H&S Pattern
Signa als generated d by head a nd shoulder r pattern
The su upport line is based on points p B and d C.
The re esistance line. After giving in at poin nt D, the ma arket may re etest the nec ckline at point E.
The price directio on. If the nec ckline holds the buying pressure at point E, then the forma ation provid des informat tion regardin ng the price direction:
diame etrically opposed to the direction o of the head-a and-shoulde ers (bearish).
The price target D to F. This is s provided b by the confi r rmation of t the formatio on (by h the necklin ne under he eavy trading volume). Th his is equal to the breaking through range from top of f the head to o neckline.
me study Volum
Some important points p to remember • The e head and d shoulders s pattern is s one of the most co ommon rev versal forma ations. It occ curs after an n uptrend an nd usually m marks a majo or trend rev versal when complete. • It is s preferable that the left and right t shoulders be symmetrical, it is no ot an absolu ute requirem ment. They can c be differ rent widths a as well as dif fferent heights. • Volu ume suppor rt and neckline support identificatio on are cons sidered to be the most critical factors. The support break k indicates a new willin ngness to sell at ere is an increase in su upply comb bined with lower prices s and lower prices. The increa asing volume e .The comb bination can n be lethal, and sometimes, there is no second chance return to the support s brea ak. • Measuring the e expected length of t the decline after the b breakout ca an be ul, but it is not n always necessary n ta arget. As the e pattern un nfolds over time, helpfu other aspects of the t technical picture are e likely to tak ke preceden nce.
- Inverted head and shoulder rs The head h and sh houlders bot ttom is the e inverse of the H&S T Top. In the chart below w, after a pe eriod, the do ownward tre end reaches s a climax, w which is follo owed by a rally r that ten nds to carry the share ba ack approxim mately to th he neckline. After a decl line below the previous low followe ed by a rally y, the head i is formed. T This is follow wed by the third decline which fails to reach the e previous low. The adv vance from this t point co ontinues acro oss the neck kline and con nstitutes the e breakthrou ugh.
The main difference between this and the Head and Shoulders Top is in the volume pattern associated with the share price movements. The volume should increase with the increase in the price from the bottom of the head and then it should start increasing even more on the rally which is followed by the right shoulder. If the neckline is broken but volume is low, you should be skeptical about the validity of the formation. As a major reversal pattern, the head and shoulders bottom forms after a downtrend, and its completion marks a change in trend. The pattern contains three troughs in successive manner with the two outside troughs namely the right and the shoulder being lower in height than the middle trough (head) which is the deepest. Ideally, the two shoulders i.e. the right and the left shoulder should be equal in height and width. The reaction highs in the middle of the pattern can be connected to form resistance, or a neckline.
- Head and shoulders bottom The price action remains roughly the same for both the head and shoulders top and bottom, but in a reversed manner. The biggest difference between the two is played by the volume. While an increase in volume on the neckline breakout for a head and shoulders top is welcomed, it is absolutely required for a bottom. Lets look at each part of the pattern individually, keeping volume in mind: 1. Prior trend: For this to be a reversal pattern it is important to establish the existence of a prior downtrend for this to be a reversal pattern. There cannot be a head and shoulders bottom formation, without a prior downtrend to reverse. 2. Left shoulder: It is formed after an extensive increase in price, usually supported by high volume. While in a downtrend, the left shoulder forms a trough that marks a new reaction low in the current trend. After forming this trough, an advance ensues to complete the formation of the left shoulder. The high of the decline usually remains below any longer trend line, thus keeping the downtrend intact.
3. Head: After the formation of the left shoulder, a decline begins that exceeds the previous low and forms a point at an even lower point. After making a bottom, the high of the subsequent advance forms the second point of the neckline. 4. Right shoulder: Right shoulder is formed when the high of the head begins to decline. The height of the right shoulder is always less than the head and is usually in line with the left shoulder, though it can be narrower or wider. When the advance from the low of the right shoulder breaks the neckline, the head and shoulders reversal is complete. 5. Neckline: The neckline is drawn through the highest points of the two intervening troughs and may slope upward or downward. The neckline forms by connecting two reaction highs. The first reaction marks the end of the left shoulder and the beginning of the head. The second reaction marks the end of the head and the beginning of the right shoulder. Depending on the relationship between the two reaction highs, the neckline can slope up, slope down, or be horizontal. The slope of the neckline will affect the pattern’s degree of bullishness: an upward slope is more bullish than downward slope. 6. Volume: Volume plays a very important role in head and shoulders bottom. Without the proper expansion of volume, the validity of any breakout becomes suspect. Volume can be measured as an indicator (OBV, Chaikin Money Flow) or simply by analyzing the absolute levels associated with each peak and trough. Volume levels during the second half of the pattern are more important than the first half. The decline of the volume of the left shoulder is usually heavy and selling pressure is also very intense. The selling continues to be intense even during the decline that forms the low of the head. After this low, subsequent volume patterns should be watched carefully to look for expansion during the advances. The advance from the low of the head should be accompanied by an increase in volume and/or better indicator readings (e.g. CMF > 0 or strength in OBV). After the formation the second neckline point by the reaction high, there
should d be a decli ine in the right shoulde er accompanied with light volume. It is norma al to exper rience profit t-taking afte er an advance. Volume analysis helps disting guish betwe een normal profit-taking p g and heavy s selling press sure. With light volume e on the pu ullback, indic cators like C CMF and OB BV should re emain strong g. The most important moment m for volume occurs on the a advance from m the low of the right shoulder. s Fo or a breakou ut to be considered valid there nee eds to be an expansion of o volume on n the advanc ce and durin ng the break kout.
1. Neckline break k: The head and should ders pattern is said to b be complete e only when neckline resistance is broken. b For a head and shoulders b bottom, this must occur in a convinc cing manner r with an exp pansion of vo olume. 2. Res sistance turn ned support t: The same resistance level can tur rn into suppo ort, if the re esistance is broken. Pric ce will return to the res sistance brea ak and prov vide a second chance to buy. 3. Pric ce target: Once O the nec ckline resista ance is broken, the proj jected advan nce is calculated by me easuring the e distance fr rom the nec ckline to the bottom o of the head. This distance is then added a to th e neckline t to reach a p price target. Any price target sho ould serve as a rough h guide and d other fac ctors should be consid dered as well. w These factors mig ght include previous r resistance le evels, Fibonacci retracem ments or lon ng-term mov ving average es.
CNX IT IND DEX Chart Sh howing Inve erse Head an nd Shoulder rs Pattern Once the neckline breaches th he prices of index starts s rising
Once the resistan nce is broke en at point D the price e target will be equal to o the bottom of the head from nec ckline. It may y test the lin ne again at p point E therefore the stop should be below the neckline.
p to remember: Some important points • Hea ad and shoulder bottom m is one of t the most co ommon and reliable rev versal forma ations. They y occur afte er a downtr rend and u usually mark k a major t trend revers sal when com mplete.
• It is preferable but not a necessary y requireme ent that the left and right should ders be sym mmetrical. Shoulders S c can be of d different wi idths as we ell as differe ent heights. . If you are looking for the perfect t pattern, th hen it will ta ake a long time to come e.
• The major focus of the analysis of the head and shoulders bottom should be the correct identification of neckline resistance and volume patterns. These are two of the most important aspects to a successful trade. The neckline resistance breakout combined with an increase in volume indicates an increase in demand at higher prices. Buyers are exerting greater force and the price is being affected. • As seen from the examples, traders do not always have to choose a stock after the neckline breakout. Many times, the price will return to this new support level and offer a second chance to buy. Measuring the expected length of the advance after the breakout can be helpful, but it is not always necessary to achieve the final target. As the pattern unfolds over time, other aspects of the technical picture are likely to take precedent.
DOUBLE TOPS AND BOTT TOMS
e are considered to be among the most famili iar of all chart patterns s and These often signal turning points, or reversals s. The doub ble top rese embles the l letter “M”. Conversely, the double bottom res sembles a “W” formatio on; in rever rse of the do ouble top.
-Doub ble top It is a term used in technical analysis to describe the rise of a s stock, a drop p and anoth her rise roughly of the sa ame level as the previou us top and finally followe ed by anoth her drop. A double top p is a rever rsal pattern which occurs followin ng an extended uptrend d. This name e is given to the pair of peaks which h is formed w when price is unable to o reach a new high. It is s desirable to sell when the price breaks below w the reactio on low that is s formed be tween the tw wo peaks.
ext: The double top mus st be followe ed by an ext tended price e rise or uptrend. Conte The tw wo peaks fo ormed need d not be equ ual in price, , but should d be same in n the area with w a mino or reaction low betwee n them. Thi is is a reliab ble indicator r of a poten ntial reversal l to the downside. Appea arance: Price moves hig gher and fo orms a new high. This is followed by a downside retrace ement, which h forms a re eaction low before one final low-vo olume
assault is made on n the area of o the recent t high. In som me cases the e previous high is r reached, an nd sometime es it is brieflly but does not hold. Th his pattern is s said never to be complete once price makes the second pea ak and then n penetrates the lowes st point betw ween the hig ghs, called th he reaction low. The sel ll indication from this to opping patte ern occurs when w price br reaks the reaction low to the downs side.
Break kout expecta ation: When n the reaction low is p penetrated t to the down nside, accom mpanied by expanding volume the e double to op pattern b becomes of fficial. Down nside price ta arget is calcu ulated by su btracting th he distance f from the rea action low to o the peak from the re eaction low. . Often time es a double top will mark a lasting g top and lead to a signi ificant declin ne which exceeds the price target to the downside. Althou ugh there ca an be variat tions but if the trend is s from bullish to bearis sh, the class sic double to op will mark k at least an intermediate change, i if not long-t term change e. Many potential doub le tops can form along the way up p, but until key k support is broken, a reversal cannot be con nfirmed. Let’ ’s look at the key points s in the form mation.
W any rev versal patte rn, there m must be an e existing tren nd to 1. Prior trend: With revers se. In the ca ase of the double d top, a significant t uptrend of f several mo onths should d be in place e. 2. Firs st peak: The first peak marks m the hig ghest point o of the curren nt trend. 3. Tro ough: Once the first pe eak is reach hed, a declin ne takes pla ace that typ pically ranges from 10-20 0%. The low ws are somet times rounded or drawn n out a bit, w which can be e a sign of te epid demand d.
4. Sec cond peak: The advance off the lows usually o occurs with low volume e and meets s resistance from the previous hig gh. Resistan nce from th he previous high should d be expect ted and after the resis stance is met, only the e possibility of a double top exists s. The patte ern still nee eds to be c confirmed. T The time period betwe een peaks ca an vary from m a few week ks to many m months, with h the norm b being 1-3 months. m Whil le exact pea aks are pref ferable, ther re is some le eeway. Usua ally a peak within w 3% of f the previou us high is ad equate. 5. Dec cline from peak: p Declin ne in the sec cond peak is s witnessed by an expan nding volum me and/or an n accelerated descent, p perhaps mar rked with a gap or two. Such a decl line shows that the forces of supply y are stronge er than the f forces of dem mand and a support test is imminen nt. 6. Sup pport break k: The doub ble top and trend reversal are not t complete even when the trading g till the sup pport is don e. The doub ble top patt tern is said t to be complete when the t support breaks from m the lowes st point between the p peaks. This to oo should oc ccur with an n increase in volume and d/or an accelerated desc cent. 7. Sup pport turned d resistance e: Broken su pport becom mes potential resistance e and there is sometime es a test of this newfoun nd resistance e level with a reaction ra ally 8. Price target: Price P target is calculate d by subtra acting the distance from m the suppo ort break to peak from the support t break. The e larger the potential de ecline the bigger will be the formation.
ALEMBIC A LT TD Chart Sho owing Doubl le Top
BHEL L Chart show wing Double Top
This stock formed a double top after a big price advance. But it fails to breach the resistance and results in price falls.
Points to be kept in mind: • Technicians should take proper steps to avoid deceptive double tops. The peaks should be separated by a time period of at least a month. If the peaks are too close, they could just represent normal resistance rather than a lasting change in the supply/demand picture. Ensure that the low between the peaks declines at least 10%. Declines less than 10% may not be indicative of a significant increase in selling pressure. After the decline, analyze the trough for clues on the strength of demand. If the trough drags on a bit and has trouble moving back up, demand could be drying up. When the security does advance, look for a contraction in volume as a further indication of weakening demand. • The most important aspect of a double top is to avoid jumping the gun. The support should be broken in a convincing manner and with an expansion of volume. A price or time filter can be applied to differentiate between valid and false support breaks. A price filter might require a 3% support break before validation. A time filter might require the support break to hold for 3 days before considering it valid. The trend is in force until proven otherwise. This applies to the double top as well. Until support is broken in a convincing manner, the trend remains up.
- Double bottom Double bottom is a charting technique used in technical analysis. It is used to describe a drop in the value of a stock (index), bounces back and then another drop to the similar level as the previous low and finally rebounds again. A double bottom is a reversal pattern which occurs following an extended downtrend. The buy signal is when price breaks above the reaction high which is formed between the two lows.
ext: The dou uble bottom must be folllowed by an n extended decline in prices. Conte The two lows formed have to be equa al in areas with a minor reaction high betwe een them, though t they y need not to be equa al in price. T This is a reliable indica ator of a pote ential revers sal to the up pside.
Appea arance: Price reduces fu urther to for rm a new low w. This is followed by upside retrac cement or minor m bounce e, which for ms a reactio on high befo ore one final l lowvolum me downwar rd push is ma ade to the a area of the re ecent low. In n some case es the previo ous low is never n reached, while in n others it is briefly pe enetrated to o the downside, but price p does not n remain below it. This patter rn is consid dered complete once price p makes the second d low and t then penetr rates the hig ghest he lows, call led the reac ction high. T The buy indication from m this point between th bottom pattern occurs when price breaks s the reactio on high to th he upside.
Break kout expectation: A do ouble botto om pattern becomes o official when n the reaction high is penetrated to the upsiide, ideally accompanie ed by expan nding volum me. Upside price p target is calculated d adding the e distance fr rom the rea action high to the low to o that of reaction high. O Often times a double bo ottom will m mark a lasting g low and lead to a significant price advance wh hich exceeds s the price target to the e upside. The ere can be many m variatio ons that can occur in the e double bot ttom, but th he classic double botto om usually marks an in ntermediate e or a long-term chang ge in trend. Many poten ntial double bottoms ca an be forme ed along the e way down, but a rever rsal cannot be b confirme ed until key r resistance is s broken. The key points s in the form mation are as s follows:
1. Prior trend: With any reversal pattern, there must be an existing trend to reverse. In the case of the double bottom, a significant downtrend of several months should be in place. 2. First trough: It marks the lowest point of the current trend. Though it is fairly normal in appearance and the downtrend remains firmly in place. 3. Peak: After the first trough is reached, an advance ranging from 10-20% usually takes place. An increase in the volume from the first trough signals an early accumulation. The peaks high is sometimes rounded or drawn out a bit because of the hesitation in going back. This hesitation is an indication of an increase in demand, but this increase is not strong enough for a breakout. 4. Second trough: The decline off the reaction high usually occurs with low volume and meets support from the previous low. Support from the previous low should be expected. Even after establishing support, only the possibility of a double bottom exists, it still needs to be confirmed. The time period between troughs can vary from a few weeks to many months, with the norm being 1-3 months. While exact troughs are preferable, there is some room to maneuver and usually a trough within 3% of the previous is considered valid. 5. Advance from trough: Volume gains more importance in the double bottom than in the double top. The advance of the second trough should be clearly evidenced by the increasing volume and buying pressure. An accelerated ascent, perhaps marked with a gap or two, also indicates a potential change in sentiment. 6. Resistance break: The double top and trend reversal are considered incomplete, even after they trade up to resistance. Breaking resistance from the highest point between the troughs completes the double bottom. This too should occur with an increase in volume and/ or an accelerated ascent. 7. Resistance turned support: Broken resistance becomes potential support and there is sometimes a test of this newfound support level with the first
correc ction. Such a test can offer o a seco ond chance to close a s short positio on or initiat te a long. 8. Pric ce target: Target T is estimated by a adding the d distance from the resist tance breakout to troug gh lows on top of the resistance b break. This w would imply y that the bigger the for rmation is, th he larger the e potential a advance.
Crude oil chart show wing Double Bottom Points s to be kept in Mind • The double bot ttom is an in ntermediate e to long-ter rm reversal pattern tha at will not fo orm in a few days. Thoug gh it can be formed in a time span o of few weeks s, but it is pr referable to have at leas st a time of 4 weeks between the tw wo lows. Bot ttoms usually take more e time than the t top. This s pattern sho ould be give en proper tim me to develo op. • The e advance off o of the first trough should be 1 10-20%. The e second tr rough should d form a low within 3% % of the pre evious low and volume e on the ensuing advan nce should in ncrease. Sign ns of buying g pressure ca an be checke ed by the vo olume indica ators such as s Chaikin Mo oney Flow, O OBV and Acc cumulation/ /Distribution n. The forma ation is not complete c until the previo ous reaction n high is take en out.
-- Rou unded top an nd bottom
Anoth her shape which a top and a bottom can take is one in whic ch the rever rsal is “rounded”. The ro ounded bott tom formati on forms wh hen the mar rket gradually yet steadi ily shifts fro om a bearish h to bullish outlook while in the ca ase of a rou unded top, from bullish to bearish. The Round ded Top form mation cons sists of a gra adual chang ge in trend from f up to down. d The R Rounded Bot ttom format tion consists s of a gradual change in n trend from down to up p. This forma ation is the e exact opposite of a Rou unded Top Formation. F The T prices take on a b bowl shaped d pattern as the marke et slowly and d casually ch hanges from an upward to a downw ward trend
OMAX XE Chart sho owing Round ded Top It is ve ery (remove) considered d very difficu ult to separa ate a rounde ed bottom, w where the price continu ues to decre ease from a consolidation pattern and where price stays at a level, but the clue, as always, iis in volume e. In a true R Rounded Bot ttom, olume decre eases as the price dec creases, this s signifies a decrease in n the the vo selling g pressure. A very litt tle trading activity can n be seen when the price movement becom mes neutral and goes s ideways and d the volum mes are also o low. art to increa ase, the volu me increase es. Then, as prices sta
A gap p is an area on a price chart c in whiich there we ere no trade es. Normally y this occurs s after the close c of the market m on o one day and the next day’s open. Lo ot’s of things s can cause this, such as an earniings report coming out t after the stock marke et had close ed for the day. d If the e earnings we ere significa antly higher than expec cted, this could result in n the price opening hig gher than th he previous day’s close. If the tradin ng that day continues to o trade abov ve that point, a gap will exist e price cha art. Gaps ca an offer ev vidence that t something g important t has in the happe ened to the fundamenta f als or the psy ychology of the crowd t that accompanies this market m movement. Gap ps appear m more freque ently on daily charts, w where every day is an opportunity o to create an n opening g gap. Gaps ca an be subdiv vided into fo our basic cat tegories: • Com mmon gap • Brea akaway gap • Runaway/ Conti inuation gap p • Exha austion gap
-- Com mmon gaps
Sometimes referr red to as a trading ga p or an are ea gap, the common g gap is usually uneventfu ul. This gap occurs char racteristically in nervous markets a and is gener rally closed within w few days. d In fact, they can be e caused by a stock goin ng exdivide end when th he trading volume v is low w. Getting c closed mean ns that the price
action n at a later time t (few da ays to a few w weeks) usu ually retrace es to at the least the last day befor re the gap. This T is also kn nown as fillin ng the gap. A com mmon gap usually app pears in a t trading range or cong gestion area a and reinfo orces the app parent lack of o interest in n the stock a at that time. . Many times this is furt ther exacerb bated by low w trading volu ume. Being aware of the ese types of f gaps is goo od, but doubtful that the ey will produ uce trading o opportunitie es.
-- Brea akaway gap ps
Break kaway gaps are the exciting ones. . They occu ur when the e price action is breaking out of th heir trading range or co ongestion area. To unde erstand gaps s, one has to o understand the natur re of conges stion areas in the mark ket. A conge estion area is just a price e range in which the market has trad ded for som me period of time, usually a few wee eks or so. The area near the top of the congestio on area is us sually from below resista ance when approached a w. Likewise, the area near the botto om of the co ongestion ar rea is suppo ort when ap pproached from above. To break o out of these areas requ uires market t enthusiasm m and eithe er many more buyers than sellers s for upside breakouts or o more selle ers than buy yers for down nside breako outs. Volum me will (shou uld) pick up significantly y, for not only the increa ased enthusiasm, but many m are hol lding positio ons on the w wrong side o of the break kout and need to cover or sell them. It is bet tter if the v volume does not happe en until the e gap occurs s. This means that the new chang ge in marke et direction has a chance of
contin nuing. The point p of brea akout now b becomes the new supp port (if an upside breakout) or resistance (if a downside breakout). Don’t fall into the tra ap of thinking this type e of gap, if associated a w with good vo olume, will be filled soo on. It might t take a long g time. Go with w the fact that a new trend in the e direction o of the stock has taken place p and tr rade accordingly. A goo od confi rmation for tra ading ed with clas ssic chart p patterns. For example, if an gaps is if they are associate ascending triangle e all of a sud dden has a b breakout gap p to the upside, this can n be a much better tra ade than a breakaway y gap with hout a good chart pa attern iated with it. associ
-- Run naway gaps
Runaw way gaps are e also called measuring g gaps and are e best descr ribed as gaps s that are ca aused by inc creased inter rest in the s stock. For runaway gaps s to the upside, it usually represent ts traders who did not g get in durin ng the initial move of th he up trend and while waiting w for a retraceme ent in price, decided it w was not going to en. Increased buying interest happ pens all of a sudden and the price gaps happe above e the previous day’s clo ose. This typ e of runawa ay gap repre esents an al lmost panic state in tra aders. Also, a good uptr rend can ha ave runaway y gaps cause ed by icant news events e that cause new iinterest in t the stock. Ru unaway gaps can signifi also happen h in do own trends. This usually represents increased liquidation of f that stock by traders and buyer rs who are standing o on the sidelines. These e can becom me very serious as thos se who are holding on nto the stoc ck will event tually
panic and sell, but sell to whom? w The price has to o continue t to drop and d gap ood situatio on. The futur res market a at times will have down to find buyers. Not a go runaw way gaps th hat are caus sed by trad ding limits i imposed by y the exchanges. Gettin ng caught on n the wrong side of the trend when n you have these limit m moves in futu ures can be horrifying. The T good ne ews is that y you can also o be on the right side of o them. The ese are not common c oc currences in n the futures market de espite t and all the e wrong Info ormation be eing touted by those wh ho do not understand it are on nly repeating g something g they read f from an unin nformed rep porter.
-- Exhaustion gap ps
Exhau ustion gaps are a those tha at happen n ear the end of a good up or down trend. They are a many tim mes the first t signal of th he end of th hat move. Th hey are identified by hig gh volume and large price differenc ce between the previous day’s close e and the ne ew opening price. They can easily be e mistaken f for runaway y gaps if one does not no otice the exc ceptionally high h volume . It is almost a a state of panic if during a long down move pessimism has set in. Selling g all positio ons to liquidate holdin ngs in the market is not uncommon. Exhau ustion gaps are a quickly filled f as pric ces reverse their trend. . Likewise if f they happe en during a bull move, some bullis sh euphoria overcomes trades and they canno ot get enoug gh of that sto ock. The pric ces gap up w with huge vo olume, then t there is grea at profit tak king and the e demand fo or the stock totally dries s up. Prices drop and a significant change c in tre end occurs.
Exhau ustion gaps are a probably y the easies st to trade a and profit fro om. In the c chart, notice e that there e was one more m day of trading to the upside before the stock plunged. The high h volume wa as the givea away that th his was going g to be either an exhau ustion gap or a runaway y gap. Becau use of the size of the ga ap and an al lmost doubling of volum me, an exhau ustion gap w was in the ma aking here.
-- Island cluster
Island d clusters are e identified by an exhau ustion gap fo ollowed by a breakaway y gap in opp posite direct tion. They ar re powerful r reversal sign nals
CAND DLE CHART TS
Charts s are the working tools s of technica al analysts. They use ch harts to plo ot the price movements of a stock over o specific c time frame es. It’s a grap phical method of showi ing where st tock prices have been i n the past. A chart give es us a complete pictur re of a stock k’s price hist tory over a p period of an n hour, day, week, mon nth or many years. It ha as an x-axis (horizontal) ) and a y-axis (vertical). Typically, t the xaxis re epresents tim me; the y-ax xis represent ts price. By p plotting a sto ock’s price o over a period d of time, we w end up with w a pictoriial representation of an ny stock’s tra ading histor ry. A chart can c also dep pict the histo ory of the v volume of tr rading in a s stock. That is, i a chart can c illustrate e the numb ber of shares that change hands over a certain time perio od.
Types s of price cha arts:
1. Line charts c - “Lin ne charts” are formed by connec cting the clo osing prices of a specif fic stock or market ove er a given p eriod of tim me. Line cha art is particu ularly useful for providing a clear visual v illustra ation of the trend of a s stock’s price e or a marke valuable analytical tool which has been et’s moveme ent. It is an extremely v used by b traders fo or past many y years.
NI IFTY (Daily) Line Chart
2. Bar ch hart - Bar ch hart is the most m popular r method tra aders use to o see price a action in a st tock over a given g period d of time. Su ch visual rep presentation n of price ac ctivity helps in spotting trends and patterns. Alt though daily y bar charts are best kn nown, bar ch harts can be created for any time pe eriod - weekly and mont thly, for exam mple. A bar shows the high h price fo or the period at the top p and the low west price a at the r. Small lines s on either s side of the v vertical bar s serve to mar rk the bottom of the bar opening and closing prices. Th he opening p price is mark ked by a small tick to the left of the e bar; the closing price is shown b by a similar tick to the right of the e bar. Many investors work w with ba ar charts cre eated over a matter of m minutes dur ring a day’s trading.
NIFTY N (Daily y) Bar Chart
Form mation Candlestick chart ts provide visual insig ght to curr rent market t psycholog gy. A estick displa ays the open n, high, low, and closing g prices in a format similar to candle a modern-day bar-chart, bu ut in a ma nner that e extenuates the relationship betwe een the op pening and closing p rices. Cand dlesticks do on’t involve any calculations. Each h candlestic ck represent ts one period (e.g., da ay) of data. . The figure e given below w displays th he elements of a candle. .
A candlestick chart can be created using the data of f high, low, o open and closing prices s for each tim me period th hat you wan nt to display. The hollow w or filled po ortion of the e candlestick k is called “t the body” (a also referred d to as “the real body”) ). The long thin t lines above and bel low the bod dy represent t the high/lo ow range and are called d “shadows” (also referr red to as “w icks” and “tails”). The h high is marke ed by the to op of the upper shadow and the low w by the bot ttom of the lower shado ow. If the stock closes higher h than its opening p price, a hollo ow candlestick is drawn n with the bottom of th he body is representing r g the openin ng price and d the top o of the body representing the closin ng price. If t the stock clo oses lower than its ope ening ndlestick is drawn with h the top of f the body representing g the price, a filled can d the bottom m of the bod y representi ing the closing price. opening price and Each candlestick k provides an easy-t to-decipher picture o of price ac ction. Immediately a tra ader can see e and comp pare the rela ationship be etween the open
and close as well as the high h and low. T The relation nship betwee en the open n and red vital inf formation a nd forms the essence of candles sticks. close is consider Hollow w candlestic cks, where the t close is greater tha an the open, indicate buying pressu ure. Filled candlesticks, c , where the e close is le ess than the e open, ind dicate selling g pressure. Thus, T compa ared to tradiitional bar charts, many y traders con nsider candle estick charts s more visua ally appealing r to interpret. g and easier
NIFT TY (Daily) Ca andlestick Ch hart
Why candlestick c charts? c What does candle estick charting offer that t typical We estern high-low bar char rts do not? Instead I of vertical v line having hori zontal ticks to identify open and c close, candle esticks repre esent two di imensional b bodies to de epict open to o close range e and shado ows to mark day’s high and a low. For se everal years s, the Japanese traders have been n using cand dlestick char rts to track market activity. Eastern n analysts h have identifi ied a numbe er of patter rns to mine the continuation and a reversal of trend. determ These e patterns ar re the basis for Japanes se candlestic ck chart ana alysis. This p places candle esticks right tly as a part of technica al analysis. Ja apanese can ndlesticks of ffer a quick picture into o the psycho ology of short term trad ding, studyin ng the effect t, not
the ca ause. Apply ying candles sticks means s that for s short-term, an investor r can make confi dent decisions d abo out buying, selling, or ho olding an inv vestment.
Candlestick analy ysis One cannot ignore that invest tor’s psycho ologically driv ven forces o of fear; greed d and hope greatly influ uence the stock prices. The overal ll market ps sychology ca an be tracke ed through candlestick k analysis. M More than just a method of pa attern recognition, cand dlestick ana alysis shows s the intera action betw ween buyers s and s. A white candlestick c indicates op pening price of the sess sion being b below sellers the cl losing price; ; and a blac ck candlestiick shows o opening pric ce of the se ession being above the closing c price e. The shado ow at top an nd bottom in ndicates the e high and lo ow for the se ession. Japanese candles sticks offer a quick pict ture into th he psycholog gy of short term tradin ng, studying the effect, not n the caus se. Therefore if you com mbine candle estick analys sis with othe er technical analysis too ols, candlest tick pattern analysis can n be a very useful u way to o select entr ry and exit p oints.
One candle c patte erns In the e terminolog gy of Japane ese candlest ticks, one ca andle patter rns are know wn as “Umb brella lines”. There are two t types o of umbrella l lines - the h hanging man n and the ha ammer. They y have long lower shado ows and sma all real bodie es that are a at top of the e trading ran nge for the session. s They y are the sim mplest lines because the ey do not necessarily have to be spotted s in co ombination with other candles to have some validity.
Hamm mer and Hang ging Man
Hanging g Man
Candlesticks -- Hammer Hammer is a one candle pattern that occurs in a downtrend when bulls make a start to step into the rally. It is so named because it hammers out the bottom. The lower shadow of hammer is minimum of twice the length of body. Although, the color of the body is not of much significance but a white candle shows slightly more bullish implications than the black body. A positive day i.e. a white candle is required the next day to confirm this signal.
Criteria • • • The lower shadow should be at least two times the length of the body. There should be no upper shadow or a very small upper shadow. The real body is at the upper end of the trading range. The color of the body is not important although a white body should have slightly more bullish implications. • The following day needs to confirm the Hammer signal with a strong bullish day.
Signal enhancements • • • The longer the lower shadow, the higher the potential of a reversal occurring. Large volume on the Hammer day increases the chances that a blow off day has occurred. A gap down from the previous day’s close sets up for a stronger reversal move provided the day after the Hammer signal opens higher.
Pattern psychology The market has been in a downtrend, so there is an air of bearishness. The price opens and starts to trade lower. However the sell-off is abated and market returns to high for the day as the bulls have stepped in. They start bringing the price back up towards the top of the trading range. This creates a small body
with a large lowe er shadow. This represe ents that th he bears cou uld not maintain contro ol. The long g lower shadow now h has the bears questioning whether the declin ne is still inta act. Confi rm mation would d be a highe er open with h yet a still higher close on the next trading day.
nging man -- Han The hanging h man n appears during an up ptrend, and its real bod dy can be e either black or white. While W it signifies a potent ial top rever rsal, it requires confi rmation g the next trading session. The han nging man u usually has little or no u upper during shado ow.
O er, 1990, Da aily (Hanging g Man and H Hammer) Soybean Oil-Decemb
(Dow Jon nes Industria als-1990, Da aily (Hanging g Man and H Hammer)
ooting star and inverted hammer -- Sho Other r candles sim milar to the hanging ma an and hamm mer are the e “shooting s star,” and th he “inverted d hammer.” Both have s small real bo odies and can be either black
or white but they both have long upper s shadows, and d have very little or no lower ows. shado
Invert ted Hammer r
Description Invert ted hammer r is one cand dle pattern w with a shado ow at least tw wo times greater than the t body. Th his pattern is s identified b by the small body. They y are found a at the bottom of the decline which is evidence that bulls ar re stepping in but still selling is goin ng on. The color c of the small body iis not impor rtant but the e white body has more bullish ind dications tha an a black body. A po ositive day is required d the wing day to confirm c this signal. follow
Signal l enhancements • • • • The lo onger the up pper shadow w, the higher r the potenti ial of a rever rsal occurrin ng. A gap down from the previou us day’s close e sets up for r a stronger reversal move. Large volume on the day of the inverte d hammer s signal increa ases the cha ances that a blow off da ay has occurr red The day after the inverted hammer signa l opens high her.
Patter rn psycholo ogy- After a downtrend d has been i in effect, th he atmosphe ere is bearis sh. The price e opens and d starts to t rade higher r. The Bulls have steppe ed in, but th hey cannot maintain m the e strength. T The existing sellers knoc ck the price back down to the lowe er end of the e trading ran nge. The Bea ars are still in n control. Bu ut the next day, d the Bulls step in an nd take the price back up without major resist tance from the t Bears. If f the price maintains m str rong after th he Inverted H Hammer day y, the signal is confirmed.
rs - A small real r body tha at gaps away y from the la arge real body preceding it is -- Star known n as star. It’s still a star as long as t the small rea al body does s not overlap the preceding real bo ody. The col lor of the st tar is not im mportant. St tars can occ cur at tops or o bottoms.
-- Sho ooting star
Description The Shooting Star r is a single line pattern that indicat tes an end t to the uptrend. It is easily identified d by the pre esence of a small body with a shad dow at least t two times greater tha an the body. . It is found at the top o of an uptren nd. The Japa anese named this pattern because it i looks like a shooting s star falling from the sky y with the ta ail trailing it.
Criter ria • • • The upper shadow w should be at least two o times the le ength of the e body. Prices s gap open after an uptre end. A sma all real body y is formed near n the low wer part of t the price ran nge. The col lor of the body is not important although a black body y should have slightly more bearis sh implicatio ons. • • The lo ower shadow w is virtually non-existen nt. The fo ollowing day y needs to confirm c the Shooting Sta ar signal wit th a black ca andle or bet tter yet, a ga ap down with a lower clo ose.
Signal l enhancements • • • • The lo onger the up pper shadow w, the higher r the potenti ial of a rever rsal occurrin ng. A gap p up from the previous s day’s close e sets up fo or a stronge er reversal m move provid ded. The day after the Shooting Star signal ope ens lower. Large volume on the t Shooting g Star day in ncreases the e chances that a blow-of ff day has oc ccurred although it is no ot a necessity y.
rn psycholog gy Patter During g an uptren nd, the mark ket gaps op en and rallies to a new w high. The price opens s and trades higher. The bulls are in control. But t before the close of the e day, the be ears step in and take th he price bac ck down to t the lower en nd of the tra ading range, creating a small body for f the day.
This could c indicate that the bulls still h have control l if analyzing g a Western n bar chart. However, the long upper shado ow represen nts that sellers had started stepping in at the ese levels. Even E though h the bulls m may have be een able to keep the price p positiv ve by the end e of the day, the e evidence of the selling g was appar rent. A lowe er open or a black cand dle the next day reinfor rces the fact t that selling g is going on.
-- Two o candles pa attern
- Bulli ish engulfing g A “bu ullish engulfing pattern” ” consists of f a large wh hite real bod dy that engu ulfs a small black real body durin ng a downt trend. It sig gnifies that the buyers s are overw whelming the e sellers
Bullish e engulfing
Description The Engulfing pattern is a major reversal pattern comprised of two opposite colored bodies. This Bullish Pattern is formed after a downtrend. It is formed when a small black candlestick is followed by a large white candlestick that completely eclipses the previous day candlestick. It opens lower that the previous day’s close and closes higher than the previous day’s open.
Criteria • • • The candlestick body of the previous day is completely overshadowed by the next day’s candlestick. Prices have been declining definitely, even if it has been in short term. The color of the first candle is similar to that of the previous one and the body of the second candle is opposite in color to that first candle. The only exception being an engulfed body which is a doji.
Signal enhancements • A small body being covered by the larger one. The previous day shows the trend was running out of steam. The large body shows that the new direction has started with good force. • • • Large volume on the engulfing day increases the chances that a blow off day has occurred. The engulfing body engulfs absorbs the body and the shadows of the previous day; the reversal has a greater probability of working. The probability of a strong reversal increases as the open gaps between the previous and the current day increases.
Pattern psychology After a decline has taken place, the price opens at a lower level than its previous day closing price. Before the close of the day, the buyers have taken over and
have led l to an inc crease in the e price abov ve the opening price of t the previous s day. The emotional psy ychology of the trend ha as now been n altered. When n investors are a learning g the stock market they should ut tilize information that has h worked with w high pro obability in t the past. Bullish h Engulfing signal s if used after prop per training and at prop per locations s, can lead to t highly pr rofitable trades and con sults. This pattern allow ws an nsistent res invest tor to impro ove their pro obabilities o of been in a correct trad de. The com mmon sense elements conveyed c in candlestick k signals ma akes for a c clear and co oncise ng technique e for beginning investors s as well as e experienced traders. tradin
- Bear rish engulfin ng A “be earish engulf fing pattern n,” on the other hand, occurs when the seller rs are overw whelming the e buyers. Th his pattern c onsists of a small white e candlestick k with short shadows or tails followed by a l arge black candlestick that eclipse es or “engu ulfs” the sma all white one e.
Engulfing Bearish E
- Pierc cing The bullish counte erpart to the e dark cloud d cover is the e “piercing p pattern.” The e first thing to look for is to spot th he piercing p pattern in an existing do owntrend, w which consis sts of a long black candlestick follow wed by a gap p lower open n during the e next sessio on, but whic ch closes at least halfwa ay into the p prior black c candlestick’s s real body.
Description The Piercing Patte ern is composed of a tw wo-candle fo ormation in a down tren nding marke et. With da aily candles s, the pierc cing pattern will often end a m minor downtrend (a downtrend tha at lasts betw ween six an nd fifteen tr rading days). The day before b the piercing p candle appears s, the daily candle shou uld have a fairly large dark real bo ody, signifyin ng a strong d down day.
ria Criter • • • • • The downtrend ha as been evid dent for a go ood period. The body of the fi irst candle is s black; the b body of the second cand dle is white. A long g black candle occurs at the end of t the trend. The white w candle closes more e than halfw ay up the black candle. The se econd day opens lower than t the tra ding of the p prior day.
Signal l enhancements • • • • The re eversal will be b more pro onounced, if f the gap do own the prev vious day clo ose is more. . The lo onger the bla ack candle and the white e candle, the e more force eful the reve ersal. The higher h the white w candl le closes in to the blac ck candle, t the stronger the revers sal. Large volume dur ring these tw wo trading da ays is a signi ificant confi rmation.
Patter rn psycholog gy The atmosphere becomes be earish once a strong do owntrend ha as been in effect. own. Bears may m move th he price eve en further bu ut before the e day The price goes do ends the bulls enters and bring b a dra matic chang ge in price in the opp posite direct tion. They fin nish near the e high of the e day. The m move has alm most negated the price decline of the previou us day. This s now has t the bears c concerned. M More buying g the next day d will confirm the mov ve. Being ab ble to utilize information n that has be een used suc ccessfully in the past is a much mor re viable investment stra ategy than taking shots in the dark. Keep in n mind, whe en you are given privileged inform mation abou ut stock mar rket tips, wh here you are e in the foo od chain. Are e you one of those privi ileged few that get top-notch pertin nent information on a ti imely manner, or are yo ou one of the e masses tha at feed into a frenzy and d allow the s smart he profits? money to make th
- Bear rish Harami In up trends, the e harami consists of a llarge white candle follo owed by a small white or black ca andle (usually black) tha at is within the previou us session’s large real body.
Description Bearish Harami is a two candlestick pattern composed of small black real body contained within a prior relatively long white real body. The body of the first candle is the same color as that of the current trend. The open and the close occur inside the open and the close of the previous day. Its presence indicates that the trend is over.
Criteria • • • • The first candle is white in color; the body of the second candle is black. The second day opens lower than the close of the previous day and closes higher than the open of the prior day. For a reversal signal, confi rmation is needed. The next day should show weakness. The uptrend has been apparent. A long white candle occurs at the end of the trend.
Signal enhancements • • The reversal will be more forceful, if the white and the black candle are longer. The lower the black candle closes down on the white candle, the more convincing that a reversal has occurred, despite the size of the black candle.
Pattern psychology The bears open the price lower than the previous close, after a strong uptrend has been in effect and after a long white candle day. The longs get concerned and start profit taking. The price for the day ends at a lower level. The bulls are now concerned as the price closes lower. It is becoming evident that the trend has been violated. A weak day after that would convince everybody that the trend was reversing. Volume increases due to the profit taking and the addition of short sales.
ish Harami - Bulli A candlestick chart pattern in n which a la arge candles stick is follow wed by a sm maller candle estick whose e body is loc cated within n the vertical range of th he larger bod dy. In downtrends, the harami con nsists of a llarge black candle follo owed by a small white or black ca andle (usuall ly white) tha at is within the previou us session’s large real body. b This pattern signifies that the e immediately precedin ng trend ma ay be conclu uding, and th hat the bulls s and bears h have called a truce.
Description The Harami is a co ommonly ob bserved phe enomenon. T The pattern is composed d of a two candle c forma ation in a down-trendin ng market. The color fi irst candle is the same as that of current c tren nd. The first body in the e pattern is s longer than n the
second one. The open and the close occur inside the open and the close of the previous day. Its presence indicates that the trend is over. The Harami (meaning “pregnant” in Japanese) Candlestick Pattern is a reversal pattern. The pattern consists of two Candlesticks. The first candle is black in color and a continuation of the existing trend. The second candle, the little belly sticking out, is usually white in color but that is not always the case. Magnitude of the reversal is affected by the location and size of the candles.
Criteria • • • • The first candle is black in body; the body of the second candle is white. The downtrend has been evident for a good period. A long black candle occurs at the end of the trend. The second day opens higher than the close of the previous day and closes lower than the open of the prior day. Unlike the Western “Inside Day”, just the body needs to remain in the previous day’s body, where as the “Inside Day” requires both the body and the shadows to remain inside the previous day’s body. • For a reversal signal, further confi rmation is required to indicate that the trend is now moving up.
Signal enhancements The reversal will be more forceful if the black candle and the white candle are longer. If the white candle closes up on the black candle then the reversal has occurred in a convincing manner despite the size of the white candle.
Patter rn psycholog gy After a strong do own-trend has h been in effect and a after a sellin ng day, the bulls open at a price higher h than the previou us close. The e short’s get concerned d and start covering. c Th he price for the t day finis shes at a hig gher level. T This gives en nough notice e to the shor rt sellers tha at trend has been violate ed. A strong g day i.e. the e next day would w convin nce everybod dy that the t trend was re eversing. Us sually the vo olume is abo ove the recen nt norm due e to the unw winding of sh ort positions. When n the second d candle is a doji, which is a candle with an alm most non-exi istent real body, b these patterns ar re called “h arami cross ses.” They a are however r less reliable as reversa al patterns as a more inde ecision is ind dicated.
ee candle pa attern -- Thre
- Even ning star The Ev vening Star is a top reve ersal pattern n that occurs at the top of an uptrend. It is form med by a tall white body y candle, a se le with a small real body y that econd candl gaps above the first f real bo ody to form a “star” an nd a third b black candle e that closes s well into th he first sessio on’s white re eal body.
Description The Evening Star pattern is a bearish reversal signal. Like the planet Venus, the evening star represents that darkness is about to set or prices are going to decline. An uptrend has been in place which is assisted by a long white candlestick. The following day gaps up, yet the trading range remain 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.
Criteria • • • The uptrend should be apparent. The body of the first candle is white, continuing the current trend. The second candle has small trading range showing indecision formation. The third day shows evidence that the bears have stepped in. That candle should close at least halfway down the white candle.
Signal enhancements • • • • Long length of the white candle and the black candle indicates more forceful reversal. The more indecision the middle day portrays, the better probabilities that a reversal will occur. A gap between the first day and the second day adds to the probability of occurrence of reversal. 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.
Patter rn psycholog gy - The psy ychology beh hind this pat ttern is that a strong upt trend has be een in effect t. Buyers ha ave been piliing up the st tock. Howev ver, it is the level where e sellers star rt taking pro ofits or think k the price i is fairly valued. The nex xt day all the e buying is being b met wi ith the sellin ng, causing fo or a small tr rading range e. The bulls get g concerned and the bears start taking over. . The third d day is a large sell off da ay. If there is s big volume e during thes se days, it sh hows that th he ownership has drama atically chan nged hands. The change e of direction is immediately seen in the color of the bodie es.
- Morning star he reverse of f evening sta al pattern formed Morning star is th ar. It is a bullish reversa t black bo ody candle, a second c andle with a small real body that gaps by a tall below w the first real body to fo orm a star, a and a third w white candle e that closes s well
into the first session’s black real r body. It ts name indi icates that it t foresees h higher s. prices
Description The Morning M Sta ar is a bottom reversa al signal. Lik ke the planet Mercury y, the morni ing star, sign nifies bright ter things – that is sunr rise is about t to occur, o or the prices s are going to o go higher. A dow wntrend has s been in place which is assisted by a long b black candle estick. There e is little abo out the down ntrend cont inuing with this type of f action. The e next day pr rices gap low wer on the open, o trade w within a sma all range and d close near their open. This small body b shows the beginnin ng of indecis sion. The ne ext day prices gap higher on the open and then n close muc ch higher. A significant reversal of t trend ccurred. has oc The make m up of the star, an n indecision formation, can consist t of a numb ber of candle e formations. The impo ortant factor r is to witne ess the conf fi rmation o of the bulls taking t over the next da ay. That cand dle should c consist of a closing that t is at least halfway h up the t black can ndle of two d days prior.
ria Criter • • • Down ntrend should be there. The body b of the first candle is black, co ontinuing the e current tr rend. The se econd candle e is an indec cision format tion. The th hird day is the t opposite e color of th he first day. . It shows evidence tha at the bulls have steppe ed in. That candle shou uld close at t least halfw way up the black candle e.
Signal l enhancements • • • • • Long length of th he black can ndle and th e white can ndle indicate es more for rceful sal. revers The more m indecis sion that the e star day illlustrates, th he better pro obabilities that a revers sal will occur. A Gap p between the first da ay and the second day y adds to th he probabili ity of occurrence of rev versal. A gap before and after the sta ar day is eve en more desirable. m th hat the third d day comes up into the black candle of the first t day, The magnitude, indica ates the strength of the reversal. r
Patter rn psycholog gy While e a strong do owntrend has been in effect, there e is a large sell-off day y. The selling g continues and bulls co ontinue to s step in at low w prices. Big g volume on n this day sh hows that the ownersh hip has dram matically cha anged. The s second day does not ha ave a large trading range e. The third day, the bea ars start to lose conviction as the bu ull increase their t buying. When the price starts moving back k into the tra ading range of the first day, the sellers diminish h and the bu uyers seize co ontrol.
- Doji close price. It’s a signif ficant Doji lines are patterns with the same open and c revers sal indicator r.
mportance of o the Doji The Im The perfect p doji session has s the same opening and closing pr rice, yet the ere is some flexibility to o this rule. If f the opening g and closing price are w within a few w ticks of eac ch other, the e line could still s be viewe ed as a doji. How do d you decide whether a near-doji day (that is s, where the e open and close are ve ery close, bu ut not exact) ) should be c considered a doji? This is subjective e and there are no rigid d rules but one o way is t to look at a near-doji d day in relatio on to recent action. If there t are a series of ve ery small re eal bodies, t the near-doj ji day d not be view wed as signif ficant since s so many oth hers would Recen nt periods ha ad small rea al bodies. On ne technique is based o on recent market activit ty. If the market is at an important m market junction, or is at t the mature e part of a bull b or bear move, m or the ere are othe er technical signals send ding out an alert, the ap ppearance of o a near-do oji is treated d as a doji. T The philosop phy is that a doji can be e a significan nt warning and a that it is s better to at ttend to a fa alse warning g than to ignore a real one. o To ignor re a doji, wi th all its inh herent implic cations, cou uld be dange erous. The doji is a disti inct trend change signa al. However, , the likeliho ood of a rev versal increa ases if subse equent cand dlesticks con nfirm the doji’s reversa al potential. . Doji sessio ons are impo ortant only in markets w where there e are not many doji. If t there are many doji on a particular chart, one s should not v view the eme ergence of a new doji in that particular market as a m meaningful developmen nt. That is why
candlestick analysis usually should not use intra-day charts of less than 30 minutes. Less than 30 minutes and many of the candlestick lines become doji or near doji Doji at tops A Doji star at the top is a warning that the uptrend is about to change. This is especially true after a long white candlestick in an uptrend. The reason for the doji’s negative implications in uptrend is because a doji represents indecision. Indecision among bulls will not maintain the uptrend. It takes the conviction of buyers to sustain a rally. If the market has had an extended rally, or is overbought, then formation of a doji could mean the scaffolding of buyers’ support will give way.
Doji are also valued for their ability to show reversal potential in downtrends. The reason may be that a doji reflects a balance between buying and selling forces. With ambiva lent market participants, the market could fall due to its own weight. Thus, an uptrend should reverse but a falling market may continue its descent. Because of this, doji need more confi rmation to signal a bottom than they do a top.
A Technical indicator is a mathematical formula applied to the security’s price, volume or open interest. The result is a value that is used to anticipate future changes in prices. A technical indicator is a series of data points derived by applying a formula to the price data of a security. Price data includes any combination of the open, high, low or close over a period of time. Some indicators may use only the closing prices, while others incorporate volume and open interest into their formulas. The price data is entered into the formula and a data point is produced.
What Does a Technical indicator offer? Technical analysts use indicators to look into a different perspective from which stock prices can be analyzed. Technical indicators provide unique outlook on the strength and direction of the underlying price action for a given timeframe.
-Why use indicators? Technical Indicators broadly serve three functions: to alert, to confirm and to predict. Indicator acts as an alert to study price action, sometimes it also gives a signal to watch for a break of support. A large positive divergence can act as an alert to watch for a resistance breakout. Indicators can be used to confirm other technical analysis tools. Some investors and traders use indicators to predict the direction of future prices.
-Tips for using indicators There are a large number of Technical Indicators that can be used to assist you in selection of stocks and in tracking the right entry and exit points. In short, indicators indicate. But it doesn’t mean that traders should ignore the price action of a stock and focus solely on the indicator. Indicators just filter price
action with formulas. As such, they are derivatives and not direct reflections of the price action. While applying the indicators, the analyst should consider: What is the indicator saying about the price action of a security? Is the price action getting stronger? Is it getting weaker? The buy and sell signals generated by the indicators, should be read in context with other technical analysis tools like candlesticks, trends, patterns etc. For example, an indicator may flash a buy signal, but if the chart pattern shows a descending triangle with a series of declining peaks, it may be a false signal. An indicator should be selected with due care and attention. It would be a futile exercise to cover more than five indicators. It is best to focus on two or three indicators and learn their intricacies inside and out. One should always choose indicators that complement each other, instead of those that move in unison and generate the same signals. For example, it would be redundant to use two indicators that are good for showing overbought and oversold levels, such as Stochastic and RSI. Both of these indicators measure momentum and both have overbought/oversold levels.
--Types of indicators Indicators can broadly be divided into two types “LEADING” and “LAGGING”. Leading indicators Leading indicators are designed to lead price movements. Benefits of leading indicators are early signaling for entry and exit, generating more signals and allow more opportunities to trade. They represent a form of price momentum over a fixed look-back period, which is the number of periods used to calculate the indicator. Some of the well more popular leading indicators include Commodity Channel Index (CCI), Momentum, Relative Strength Index (RSI), Stochastic Oscillator and Williams %R.
Lagging Indicators Lagging Indicators are the indicators that would follow a trend rather then predicting a reversal. A lagging indicator follows an event. These indicators work well when prices move in relatively long trends. They don’t warn you of upcoming changes in prices, they simply tell you what prices are doing (i.e., rising or falling) so that you can invest accordingly. These trend following indicators makes you buy and sell late and, in exchange for missing the early opportunities, they greatly reduce your risk by keeping you on the right side of the market. Moving averages and the MACD are examples of trend following, or “lagging,” indicators.
MOVING AVERAGES One of the most common and familiar trend-following indicators is the moving averages. They smooth a data series and make it easier to spot trends, something that is especially helpful in volatile markets. They also form the building blocks for many other technical indicators and overlays. The two most popular types of moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). They are described in more detail below.
- Simple moving average (SMA) A simple moving average is formed by computing the average (mean) price of a security over a specified number of periods. It places equal value on every price for the time span selected. While it is possible to create moving averages from the Open, the High, and the Low data points, most moving averages are created using the closing price. For example: a 5-day simple moving average is calculated by adding the closing prices for the last 5 days and dividing the total by 5.
---------------------------------------10 + 11 + 12 + 13 + 14 = 60 60 / 5 = 12 ---------------------------------------The calculation is repeated for each price bar on the chart. The averages are then joined to form a smooth curving line - the moving average line. Continuing our example, if the next closing price in the average is 15, then this new period would be added and the oldest day, which is 10, would be dropped. The new 5day simple moving average would be calculated as follows: ---------------------------------------11 + 12 + 13 + 14 + 15 = 65 65 / 5 = 13 ----------------------------------------
Over the last 2 days, the SMA moved from 12 to 13. As new days are added, the old days will be subtracted and the moving average will continue to move over time.
- Exponential moving average (EMA) Exponential moving average also called as exponentially weighted moving average is calculated by applying more weight to recent prices relative to older prices. In order to reduce the lag in simple moving averages, technicians often use exponential moving averages. The weighting applied to the most recent price depends on the specified period of the moving average. The shorter the EMA’s period, weight is applied to the most recent price. For example: a 10period exponential moving average weighs the most recent price 18.18% while a 20-period EMA weighs the most recent price 9.52%. As we’ll see, the calculating and EMA is much harder than calculating an SMA. The important thing to remember is that the exponential moving average puts more weight on recent
prices. As such, it will react quicker to recent price changes than a simple moving average. Here’s the calculation formula. shorter the EMA’s period, weight is applied to the most recent price. For example: a 10-period exponential moving average weighs the most recent price 18.18% while a 20-period EMA weighs the most recent price 9.52%. As we’ll see, the calculating and EMA is much harder than calculating an SMA. The important thing to remember is that the exponential moving average puts more weight on recent prices. As such, it will react quicker to recent price changes than a simple moving average.
Exponential moving average calculation Exponential Moving Averages can be specified in two ways - as a percent-based EMA or as a period-based EMA. A percent-based EMA has a percentage as its single parameter while a period-based EMA has a parameter that represents the duration of the EMA. The formula for an exponential moving average is: EMA (current) = ((Price (current) - EMA (prev)) x (Multiplier) + EMA (prev) For a percentage-based EMA, “Multiplier” is equal to the EMA’s specified percentage. For a period-based EMA, “Multiplier” is equal to 2 / (1 + N) where N is the specified number of periods.
For example, a 10-period EMA’s Multiplier is calculated like this: 2 2
-------------------- = ------------------ = .1818 (Time period) (10 + 1) (18.18%)
This means that a 10-period EMA is equivalent to an 18.18% EMA. The 10-period simple moving average is used for the first calculation only. After that the previous period’s EMA is used. Note that, in exponential moving average, every previous closing price in the data set is used in the calculation. The impact of the older data never disappears though it diminishes over a period of time. This is true regardless of the EMA’s
specif fied period. The effects s of older d data diminish rapidly fo or shorter E EMA’s than for f longer on nes but, again, they neve er complete ely disappear r.
Simple versus exp ponential Gener rally you wi ill find very y little differ rence between an exp ponential mo oving averag ge and a sim mple moving g average. Co onsider this example wh hich uses on nly 21 tradin ng days, the difference e is minim al but a d difference n nonetheless. The expon nential mov ving average e is consist tently close er to the a actual price e. On averag ge, the EMA A is 3/8 of a point p closer to the actua al price than n the SMA.
- Whic ch is better? ? A question about moving averages that s eems to weigh heavily o on traders’ m minds is whe ether to use e the “simple” or “expo onential” mo oving averag ge. Regardle ess of the ty ype you choose, the bas sic principle is that if th here is more e buying pressure than selling s pressure, prices will w move ab bove the ave erage and th he market w will be in an uptrend. On the other r hand heav vy selling pr ressure will make the p prices drop below b the moving m avera age, indicatin ng a downtre end. The choice c of moving m avera age depend ds on variou us factors like your tra ading freque ency, invest ting style an nd the stoc ck which ha as been trad ded by you. The simple e moving av verage obvio ously has a l ag, but the exponential l moving ave erage may be b prone to quicker brea aks. Some tr raders prefe er to use exp ponential mo oving averag ges for shor rter time pe eriods to ca apture chang ges quicker. . Some inve estors
prefer simple moving averages over long time periods to identify long-term trend changes. In addition, much will depend on the individual security in question. A 50- day SMA might work great for identifying support levels in INFOSYS but a 100-day EMA may work better for the ACC. Moving average type and length of time will depend greatly on the individual security and how it has reacted in the past. The dilemma of an investor whether to select exponential moving average or simple moving average can be solved only by obtaining an optimum trade off between sensitivity and reliability. The more sensitive an indicator is the more signals that will be given. Although these signals may prove timely, but they are highly sensitive and may generate false signals. The less sensitive an indicator is the fewer signals that will be given by it. However, less sensitivity leads to fewer and more reliable signals. Sometimes these signals can be late as well. Shorter moving averages are very sensitive and generate more signals. The EMA, which is generally more sensitive than the SMA, will also be likely to generate more signals. But along with it numbers of false signals are also high. Longer moving averages will move slower and generate fewer signals. These signals will likely prove more reliable, but they also may come late. Thus it requires every investor to experiment on different moving averages –lengths and their types to examine the trade-off between sensitivity and signal reliability.
- Trend-following indicator Moving averages are used to determine the direction of trend and are basis of many trend following systems. Moving averages smooth out a data series and make it easier to identify the direction of the trend. Instead of predicting a change in trend, moving averages follow behind the current trend because past price data is used to form moving averages, they are considered lagging or trend following. Therefore, you can use moving averages for trend identification and trend following purposes, not for prediction.
-When to use? Because moving average is a trend following indicator, you should use it when a security is trending. Application of moving averages would be ineffective when a security moves in a trading range. With this in mind, investors and traders should first identify securities that display some trending characteristics before attempting to analyze with moving averages. With a simple visual assessment of the price chart you can determine if a security exhibits characteristics of trend. Using price chart you can analyze whether a stock is trending up, trending down or trading in a range. When a security forms a series of higher highs and higher lows it is said to be in uptrend. A downtrend is established when a security forms a series of lower lows and lower highs. A trading range is established if a security cannot establish an uptrend or downtrend. If a security is in a trading range, an uptrend is started when the upper boundary of the range is broken and a downtrend begins when the lower boundary is broken. It is sometimes difficult to determine when a trend will stop and a trading range will begin or when a trading range will stop and a trend will begin. The basic rules for trends and trading ranges laid out above can be applied.
- Moving average settings Once the security exhibiting the above characteristics is selected the next task is to select the number of moving average periods and type of moving average. The number of periods in a moving average will depend upon the security’s volatility, trend and personal preferences. Shorter length moving averages are more sensitive and identify new trends earlier, but also give more false alarms. Longer moving averages are more reliable but less responsive, only picking up the big trends. There is no predetermined or fixed length of moving averages, but some of the more popular lengths include 21, 50, 89, 150 and 200 days as well as 10, 30 and 40 weeks. Short-term traders may look for evidence of 2-3
week trends with a 21-day moving average, while longer-term investors may look for evidence of 3-4 month trends with a 40-week moving average. You should examine how the moving average fits with the price data. If there are too many breaks, lengthen the moving average to decrease its sensitivity. If the moving average is slow to react, shorten the moving average to increase its sensitivity. In addition, you may want to try using both simple and exponential moving averages. Exponential moving averages are usually best for short-term situations that require a responsive moving average. Simple moving averages work well for longer-term situations that do not require a lot of sensitivity.
- Uses of moving averages There are many uses for moving averages, but three basic uses stand out: • Trend identification/confi rmation • Support and resistance level identification/confi rmation • Trading systems
Trend identification/ Confirmation Moving averages are helpful in keeping you in line with the price trend by providing buy signals shortly after the market bottoms out and sell signals shortly after it tops, rather than trying to catch the exact bottom or top. There are three ways to identify the trend with moving averages: direction, location and crossovers. The first trend identification technique uses the direction of the moving average to determine the trend. The trend is considered up when moving average is continuously rising. If the moving average is declining, the trend is considered down. The direction of a moving average can be determined simply by looking at a plot of the moving average or by applying an indicator to the moving average. In either case, we would not want to act on every subtle change, but rather look at general directional movement and changes.
The second technique for trend identification is price location. The basic trend can be determined through location of the price relative to the moving average. If the price is located below the moving average then there is a downward trend in place and visa versa for the price being located above the moving average. The third technique for trend identification is the location of the shorter moving average relative to the longer moving average. The trend will go up is going up if the shorter moving average is above the longer moving average. If the shorter moving average is below the longer moving average, the trend is considered down.
Moving averages - key points The Moving Average (MA) is the simplest and most widely used technical analysis tool. The MA attempts to tone down the fluctuations of market prices to a smoothed trend, so that distortions are reduced to a minimum. MAs help in tracking trends and signaling reversals. The most important merit of moving average system is that you will always be on “right” side of the market.
Interpretation Signals to buy or sell are generated when the price crosses the MA or when one MA crosses another, in the case of multiple MAs. Buy when prices move above the moving average line on the chart and sell when prices drop below the moving average line another method used by technical analysts is using the two moving averages on the same chart with different time periods. Since the MA is a lagging indicator, a crossover will usually signal a trend reversal well after a new trend has begun and is used largely for confi rmation. Generally speaking, the longer the time span covered by an MA, the greater the significance of a crossover signal. For example, the crossover of a 100 or 200-day MA is significantly more important then the crossover of a 20-day MA.
Moving averages differ according to the weight assigned to the most recent data. Simple moving averages apply equal weight to all prices. More weight is applied to recent prices in the case of exponential and weighted averages. Variable moving averages change the weighting based on the volatility of prices. When prices fluctuate up and down in a broad sideways pattern for an extended period (trading-range market), longer term MAs are slow to react to reversals in trend, and when prices move sideways in a narrow range shorter term MAs often produce false signals. Flat and conflicting MAs generally indicate a tradingrange market and one to avoid, unless there is pronounced rounding that suggests a possible new trend.
Type of MA
Simple (This is the Use of multiple MAs can Crossover of short term most commonly used provide good signals through long term MA) Useful periods Convergence/ Divergence • Short term 10-30 day Crossover of MA by price • Mid term 30-100-day • Long term 100-200+day There is no perfect time span Linearly Weighted With this MA, data is Warning of trend reversal weighted in favour of most given by change in recent observations. Has direction of the average the ability to turn or reverse rather than crossover. more quickly than simple MA. Exponential (EMA) An exponential (or • Crossover of short term exponentially through long term weighted) moving average • Convergence/ Divergence is calculated by applying a • Crossover of MA by price percentage of today's closing price to yesterday's moving average value. Exponential moving averages place more weight on recent
prices. An automatically adjusting exponential moving average based on the volatility of the data.
The more volatile the data, the greater the weight given to the current data and the more smoothing used in the moving average calculation.
A variable moving average is an exponential moving average that automatically adjusts the smoothing percentage based on the volatility of the data series. Such moving average compensates for trading-range versus trending markets. This MA automatically adjusts the smoothing constant to adjust its sensitivity, often allowing it to outperform the other moving averages in these difficult markets. Because of the potential for false signals MAs should always be used in conjunction with the other indicators. For example Bollinger bands adjust in distance from a moving average based on volatility, using standard deviation above and below the moving average rather than percentages. Indicators which are especially well-suited for being used with moving averages include MACD, Price ROC, Momentum, and Stochastic. A moving average of another moving average is also common.
- Signals - moving average price crossover
A price break upwards through an MA is generally a buy signal, and a price break downwards through an MA is generally a sell signal. As we have seen, the longer the time span or period covered by an MA, the greater the significance of a crossover signal. If the MA is fl at or has already changed direction, its violation is fairly conclusive proof that the previous trend has reversed. False signals can be avoided by using a filtering mechanism. Many traders, for example, recommend waiting for one period - that is one day for daily data and one week for weekly data.
When never possible try to use e a combina ation of signals. MA cros ssovers that t take place at the sam me time as trend t line v violations or r price patte ern signals often provid de strong co onfirmation.
- Signa als - multiple moving av verages It is usually u adva antageous to employ m more than o one moving average. Do ouble and tr riple MAs oft ten provide useful signa als. With two MAs the t double crossover is used. Wh hen the sho ort term mo oving ge crosses th he long term m moving av verage to the e downside, then a sell s signal averag would d be triggere ed and visa versa. For e example, tw wo popular c combination ns are the 5 and 20-day y averages and the 20 a and 100-day y averages. T The technique of using two averag ges together r lags the m market a bit more than a single mo oving ge but produ uces fewer whipsaws. w averag Many investors use u the triple e moving av verage cross sover system m to buy and sell stock. . The most widely w used d triple cross sover system m is the popular 4-9-18 8-day MA combination c . A buy sig gnal is gen nerated whe en the shortest (and most sensit tive) average - the 4 day d - crosse es first the 9-day and then the 18 8-day change in tr averag ges, each cro ossover confirming the c rend.
s Additional points • The e 200-day MA M (or 40-we eek MA), sh hould be carefully watc ched as a pi ivotal level of support or resistan nce for the long-term trend. Man ny people w watch carefu ully when th he 200-day MA is app roached by the price. The relationship
between the price and its 200- day MA can often provide excellent buy or sell signals. • The 200-day MA is also particularly significant for the various indexes, such as the Nifty, Sensex or NASDAQ. A crossover of this MA has often signaled a correction or period of consolidation. • Moving averages can also be calculated and plotted for other indicators, not just the price. A continued upward movement by the indicator is signified by the indicator rising above its moving average. A continued downward movement is signified by the indicator falling below its moving average.
Relative Strength Index (RSI) The RSI is part of a class of indicators called momentum oscillators. There are a number of indicators that fall in this category, the most common being Relative Strength Index, Stochastic, Rate of Change, Williams %R. Although these indicators are all calculated differently, there are a number of common elements to their use which shall be discussed in the context of the RSI.
What is momentum? Momentum is simply the rate of change – the speed or slope at which a stock or commodity ascends or declines. Measuring speed is a useful gage of impending change. For example, assume that you were riding in a friends’ car, not looking at what was happening ahead but instead just at the speedometer. You can see when the car starts to slow down and if it continues to do so you can reasonably assume it’s going to stop very shortly. You may not know the reason for it coming to a stop…it could be the end of the journey, approaching and intersection or because the road is a little rougher ahead. In this manner watching the speed provides a guide for what may happen in the future. An oscillator is an indicator that moves back and forth across a reference line or between prescribed upper and lower limits. When an oscillator reaches a new high, it shows that an uptrend is gaining speed and is likely to continue. When an oscillator traces a lower peak, it means that the trend has stopped accelerating and a reversal can be expected from there, much like a car slowing down to make a U-Turn. In the same way watching a stock for impending momentum change can provide a glimpse of what may happen in the future – momentum oscillators, such as RSI are referred to as trend leading indicators. The chart below illustrates the typical construction of the RSI which oscillates between 0% and 100%. You will notice there is a pair of horizontal reference
lines: 70% ‘overb bought’ and 30% ‘overso old’ lines. Th he overboug ght region r refers e case where e the RSI osc cillator has m moved into a region of s significant buying to the pressu ure relative to the rece ent past and d is often an n indication that an up pward trend is about to end. Simila arly the oversold region n refers to t the lower pa art of the momentum m oscillator o wh here there is s a significan nt amount of f selling pressure relativ ve to the rec cent past and d is indicativ ve of an end to a down s swing.
Ni ifty Chart wiith RSI
- Appl lication of RSI R RSI is a moment tum oscillato or generally y used in si ideways or ranging ma arkets where e the price moves m betw ween suppor rt and resist tance levels. It is one o of the most useful techn nical tool em mployed by m many trader rs to measur re the velocity of tional price movement. m direct
- Over rbought and d Oversold The RSI is a price-following oscillator o tha at ranges between 0 and d 100. Gene erally, technical analysts s use 30% oversold o and d 70% overb bought lines to generate the buy an nd sell signa als. • Go long when th he indicator moves from m below to above the ov versold line.
• Go short s when the t indicator moves from m above to b below the overbought l line. Note here that th he direction of crossing iis important t; the indicator needs to o first go pas st the overbought/overs sold lines an nd then cross s back throu ugh them.
Silver Chart showing buy and a sell points and also the f failure in trend ding market
- Dive ergence The other o mean ns of using g RSI is to o look at d divergences between price peaks s/troughs and indicator peaks/ p troug ghs. If the price make es a new higher peak but the mo omentum d does not ma ake a corres sponding hig gher peak this t indicate es there is less power driving the new price high. Since there is le ess power o or support f for the new w higher pr rice a revers sal could be expected. Simila arly if the price makes a new lowe er trough bu ut the mom mentum indicator does not make a correspond ding lower tr rough, then it can be su urmised tha at the downward movement is run nning out of f strength and a revers sal upward c could soon be expected. This is illustrated in the chart below. A bu ullish diverg gence sents upwa ard price pressure a nd a bear rish diverge ence represents repres downward price pressure. p
Wipr ro Chart sho owing Negat ive and Positive Diverge ence
ence shows a new lowe r trough for rming at point ‘A’ but th he RSI • The first diverge ator does not reach a new lower r trough. Th his indicates s the down nward oscilla movement is exha austing and an upward m move is imm minent. d third are a bearish div ergence wit th a new sha arply higher peak • The second and ed at ‘B’ but it is not sup pported by a at least an equal high in the RSI, hence a forme downward move is expected. .
Natural N Gas Chart C showin ng Strong Bu ullish Diverg gence
The Stochastic indicator was developed by George Lane. It compares where a security’s price closes over a selected number of period. The most commonly 14 periods stochastic is used. The Stochastic indicator is designated by “%K” which is just a mathematical representation of a ratio.
(today’s Close)-(Lowest low over a selected period) %K= ------------------------------------------------------------------------------------------(Highest over a selected period)- (Lowest low over a selected period)
For example, if today’s close is 50 and high and low over last 14 days is 40 and 55 respectively then,
50-40 %K= ----------- = 0.666 55-40
Finally these values are multiplied by 100 to change decimal value into percentage for better scaling. This 0.666 signifies that today’s close was at 66.6% level relative to its trading range over last 14 days. A moving average of %K is then calculated which is designated by %D. The most commonly 3 period’s %D is used. The stochastic indicator always moves between zero and hundred, hence it is also known as stochastic oscillator. The value of stochastic oscillator near to zero signifies that today’s close is near to lowest price security traded over a selected
period d and simila arly value of f stochastic o oscillator ne ear to hundred signifies s that today’s close is ne ear to highes st price secu urity traded over a selected period.
Interp pretation of Stochastic Indicator I Most popularly st tochastic ind dicator is use ed in three w ways
a. To define ove erbought and oversold d zone- Generally stoc chastic oscillator readin ng above 80 0 is conside ered overbo ought and s stochastic o oscillator rea ading below w 20 is consid dered overso old. It basica ally suggests s that
• One e should boo ok profit in buy side po ositions and d should avo oid new buy y side positio ons in an ov verbought zo one.
• One e should book profit in sell side po ositions and d should avo oid new sell l side positio ons in an ov versold zone.
This would w be clea arer from fig gure
e illustrates overbought o visible Figure and oversolld zones for spot Nifty. It is clearly v that in i most of the cases prices p have corrected from overb bought zone e and similarly prices ha ave rallied from oversold d zone.
b. Buy y when %K line crosses % D line (do otted line) to o the upside in oversold zone and sell s when %K % line cro osses % D line(dotted line) to the downsid de in overbought zoneThis would w be clea arer from fig gure below
e illustrates buying sign nals being ge enerated by y %K upside e crossover in an Figure overso old zone and selling sig gnals being g generated b by %K downside crossov ver in an ove erbought zone on a Nifty spot price chart.
c. Loo ok for Divergences- Diver rgences are of two types i.e. positiv ve and negat tive.
Positive Divergen nce-are formed when price make es new low w, but stoch hastic ator fails to make new low. This d divergence s suggests a r reversal of t trend oscilla from down d to up. This would be clearer f rom figure b below.
e illustrates Nifty spot making m new w lows where eas stochast tic oscillator r fails Figure to make new low, , finally Nifty y trend reve rsed from do own to up.
tive Diverge ence-are for rmed when price make es new high h, but stoch hastic Negat oscilla ator fails to make new high. This d divergence s suggests a r reversal of t trend from up u to down. This would be clearer f rom figure b below.
e illustrates Nifty spot making m new highs whereas stochast tic oscillator r fails Figure to make new high h, finally Nift ty trend reve ersed from u up to down.
am %R Willia
The William W %R in ndicator was s developed d by Larry W Williams. This is almost similar to sto ochastic osc cillator except for a ne gative scale e. The Willia am %R indicator alway ys moves bet tween zero and a minus h hundred (-10 00)
Interp pretation of William %R R Indicator
Most popularly st tochastic ind dicator is use ed in two wa ays a. To define ove erbought an nd oversold zone- Gen nerally Willia am % R rea ading betwe een 0 and -2 20 are consid dered overbought and W William % R reading betw ween -80 to o -100 are co onsidered ov versold. It ba asically sugge ests that • One e should boo ok profit in buy side po ositions and d should avo oid new buy y side positio ons in an ov verbought zo one. • One e should book profit in sell side po ositions and d should avo oid new sell l side positio ons in an ov versold zone. This would be clearer f from figure 1 138 below.
Figure e illustrates overbought o and oversolld zones for spot Nifty. It is clearly v visible that in i most of the cases prices p have corrected from overb bought zone e and similarly prices ha ave rallied from oversold d zone.
Look for f Divergen nces- Diverge ences are of f two types i.e. positive a and negative e.
Positive Divergen nce-are form med when p price makes s new low, but William m%R fails to o make new w low. This di ivergence su uggests a rev versal of trend from dow wn to up. Th his would be e clearer from m figure belo ow.
e illustrates Nifty spot making m new lows where eas William % R fails to m make Figure new lo ow, finally Nifty N trend re eversed from m down to up.
tive Diverge ence-are formed when price makes s new high, but William m%R Negat fails to make new w high. This divergence suggests a r reversal of t trend from up to down. This would d be clearer from f figure b below.
Figure e illustrates Nifty spot making m new h highs where eas William % R fails to m make new high, h finally Nifty N trend reversed r from m up to dow wn.
`- Rea al-life Proble ems in use of RSI • RSI in i overbought levels doe es not alway ys signify an overbought t Market. • RSI in i oversold levels does not n always s ignify an ove ersold Mark ket. • The RSI can rem main in overb bought / ove ersold zones for long per riods of time e. ullish diverge ence may no ot always lea ad to a rally • A bu • A be earish diverg gence may not n always le ead to a decl line. - Adva anced Conce epts In Bull Markets th he level is 70 0 and 40.
art in Uptren nd showing R RSI Oversold d levels below w 40 Gold Cha IN Bear Markets the e level is 60 a and 30.
Infosy ys in Downtr rend showing g Overbought level abov ve 60
RSI moves into overbought and oversold zones • Overbought and oversold levels cannot be used to buy and sell under all circumstances. When the RSI goes above 70, we say that it is overbought. This leads to the erroneous conclusion that we should be selling the security. IF the RSI goes below 30, we say that it is oversold. This leads to the erroneous conclusion that we should be buying the security. • We should consider the upper and lower boundaries of 70 and 30 as ‘extreme zones’. When the RSI moves inside an extreme zone, we receive an alert that the security may be ready for a buy or sell trade. But, the trade may or may not actually happen.
Low risk trades when RSI is in extreme zones • The level of extreme zones changes in bull and bear markets. In general, in a bull market, the extreme zones are located at 70 and 40. In a bear market, the extreme zones are located at 60 and 30. • A zone shift in an indication of a change in trend. When the RSI shifts zones, this is one of the first indications that a change in trend is taking place. • In a bear market, the RSI moves up during periods of bear allies. It usually finds resistance around 60. Now, in one such rally, the RSI crosses 60 and finds resistance around 70. A zone shift has taken place. This is one of the first signs that the market may be shifting from a bearish to bullish environment.
In a bear market, look for these signs • The RSI moves up during periods of bear rallies. It usually finds resistance around 60. Now, in one such rally, the RSI crosses 60 and finds resistance around 70. A zone shift has taken place. This is one of the first signs that the market may be shifting from a bearish to bullish environment.
• The RSI falls and d finds supp port between n 20 to 30. D During a dec cline, the RSI falls nds support around 40. This may be e a sign that the market is changing from but fin bearis sh to bullish. . This is also an example e of zone shif ft.
Shift from f Bear to o Bull
Reliance e Chart show wing Upwar rd Shift in RS SI
In a bull market, look for these signs • The RSI moves down d during g periods of declines dec cline. It usua ally finds sup pport aroun nd 40. Now, , in one such decline, the RSI cro osses 40 an nd finds sup pport aroun nd 30. A zon ne shift has taken place e. This is on ne of the fir rst signs tha at the marke et may be sh hifting from a bullish to b bearish environment. • The RSI rallies and a finds resistance aro ound 70. During a rally, the RSI rise es but finds resistance around 60. This T may be a sign that the market is changing from h to bearish. . This is also an example e of zone shif ft. bullish
Shift from f bull to bear When n a zone shif ft is detecte ed, look for a signal to t trade in the e direction o of the new trend. If poss sible, step do own to a low wer time frame to take t the trade. one shift from m Up to Dow wn is detecte ed on a daily y chart, mov ve to a 60-minute If a zo chart. Sell when the trend ind dicators on t his 60 minut te chart give e a sell signa al. • Use the ADX to determine a strong tren nd. When the ADX is abo ove 30 and r rising, assum me that a str rong trend is i in place. T on of the tre end, up or d down The directio
should d be availab ble by simple chart exa mination. W When the market is tren nding use th he extreme levels to iden ntify trades only in the d direction of t the trend. IF the e market is in an up tre end, then a dip to 40 should be c considered a as an oppor rtunity to bu uy. But a rally y to 70 is NO OT an opportunity to sho ort sell.
ING AVERAG GE CONVERG GENCE/DIVE ERGENCE (M MACD) MOVI
MACD D stands for r Moving Av verage Conv vergence / D Divergence. It is a tech hnical analys sis indicator created by Gerald Appe el in the late e 1970s. The e MACD indicator is basically a refin nement of the two mov ving average es system and measure es the distan nce between n the two mo oving averag ge lines.
What is the MACD D and how is i it calculated? The MACD M does not comple etely fall int to either the trend-lead ding indicator or ybrid with e trend following in ndicator; it is s in fact a hy elements of both. The M MACD comprises two lin nes, the fast t line and th he slow or signal line. T These are ea asy to ow line will be b the smoot ther of the t two. identify as the slo
NIF FTY chart below illustrat es the basic MACD lines s
The procedure for calculating the MACD lines is as follows: Step1. Calculate a 12 period exponential moving average of the close price. Step2. Calculate a 26 period exponential moving average of the close price. Step3. Subtract the 26 period moving average from the 12 period moving average. This is the fast MACD line. Step4. Calculate a 9 period exponential moving average of the fast MACD line calculated above. This is the slow or signal MACD line.
- MACD BENEFITS The importance of MACD lies in the fact that it takes into account the aspects of both momentum and trend in one indicator. As a trend-following indicator, it will not be wrong for very long. The use of moving averages ensures that the indicator will eventually follow the movements of the underlying security. By using exponential moving averages, as opposed to simple moving averages, some of the lag has been taken out. As a momentum indicator, MACD has the ability to foreshadow moves in the underlying security. MACD divergences can be key factors in predicting a trend change. A negative divergence signals that bullish momentum is going to end and there could be a potential change in trend from bullish to bearish. This can serve as an alert for traders to take some profits in long positions, or for aggressive traders to consider initiating a short position. MACD can be applied to daily, weekly or monthly charts. The MACD indicator is basically a refinement of the two moving averages system and measures the distance between the two moving average. The standard setting for MACD is the difference between the 12 and 26- period EMA. However, any combination of moving averages can be used. The set of moving averages used in MACD can be tailored for each individual security. For weekly charts, a faster set of moving averages may be appropriate. For volatile stocks, slower moving averages may be needed to help smooth the data. No matter what the characteristics of the
under rlying securit ty, each individual can s set MACD to o suit his or her own tra ading style, objectives and a risk toler rance.
- Use of MACD lin nes MAC CD generates s signals from m three mai n sources: • Mov ving average e crossover • Centerline cross sover • Dive ergence
- Cros ssover of fas st and slow lines The MACD M proves s most effec ctive in wide e-swinging trading mark kets. We will first consid der the use of the two o MACD line es. The sign nals to go lo ong or shor rt are provid ded by a cro ossing of the e fast and sllow lines. Th he basic MA ACD trading rules are as s follows: • Go long when th he fast line crosses c abov ve the slow l line. • Go short s when the t fast line crosses belo ow the slow line. These e signals are e best when they occu ur some dis stance abov ve or below w the refere ence line. If the t lines rem main near th he reference e line for an extended period as usu ually occurs in a sideway ys market, th hen the signals should be ignored.
INFOSYS cha art showing MACD cross sovers
- Cent ter line cross sover A bullish centerlin ne crossover r occurs whe en MACD mo oves above the zero line e and into positive p terr ritory. This is i a clear in ndication that momentum has cha anged from negative to positive or from bearis sh to bullish. After a positive diverg gence and bullish movin ng average crossover, th he centerline e crossover c can act as a confi on signal. Of the three signals, mov ving average e crossover are probably the rmatio second most common signals s. A bearish centerline crossove er occurs wh en MACD m moves below zero and int to y. This is a cle ear indicatio on that mom mentum has c changed fro om negative territory positiv ve to negativ ve or from bullish b to bea arish. The ce enterline cro ossover can act as an independen nt signal, or confirm c a pr rior signal su uch as a mov ving average crosso over or nega ative diverge ence. Once M MACD crosse es into negat tive territory y, mome entum, at least for the short term, h has turned b bearish.
ta Steel Char rt showing C Centerline cr rossover Tat ERGENCE - DIVE An ind dication tha at an end to o the curren nt trend ma ay be near o occurs when n the MACD D diverges from f the se ecurity. A p ositive dive ergence occu urs when M MACD begins s to advanc ce and the security s is s still in a dow wntrend and d makes a lower reaction low. MA ACD can eith her form as a series of h higher lows or a second d low s higher than the previo ous low. Pos sitive divergences are probably the least that is comm mon of the three signals s, but are us sually the m most reliable e and lead to o the bigges st moves.
A negative divergence forms when the se ecurity adva ances or mov ves sideways and MACD D declines. The T negative e divergence e in MACD c can take the form of either a lower high or a straight dec cline. Negat tive divergen nces are pr robably the least comm mon of the three signals s, but are us sually the most reliable and can wa arn of an impending pea ak.
INFO OSYS chart showing MAC CD Positive D Divergence
NIFTY Y chart show wing MACD N Negative Div vergence
To Summarize • The MACD is a hybrid h trend following a nd trend lea ading indicat tor. sists of two lines; a fast l ine and a slo ow ‘signal’ line. • The MACD cons • A lo ong position is indicated by a cross o of the fast li ine from below to abov ve the slow w line. • A sh hort position n is indicated d by a cross of the fast line from above to below w the slow w line.
• MACD should be avoided in trading markets • The MACD is useful for determining the presence of divergences with the price data.
- Money Flow Index
Money flow index takes into account volume action and on the basis of volume action; it attempts to measure the strength of money fl owing in and out the security which now a days is also known as smart money flow indicator. To understand calculation aspect of MFI, one should first understand positive money flow and negative money flow which is the basis of MFI. When day’s average price is greater than previous day’s average price, it’s said to be positive money flow and similarly when day’s average price is less than previous day’s average price; it’s said to be negative money flow. Money flow for a specific day is calculated by multiplying the average price by the volume. Positive money flow is calculated by summing the positive money flow over a specified number of periods. Negative money flow is calculated by summing the negative money flow over a specified number of periods. When one divides positive money flow by negative money flow, one gets money ratio. Finally MFI = 100-100/(1+money ratio)
Interpretation of MFI Most popularly MFI indicator is used in two ways a. To define overbought and oversold zone- Generally MFI reading above 80 is considered overbought and MFI reading below 20 is considered oversold. It basically suggests that • One should book profit in buy side positions and should avoid new buy side positions in an overbought zone. • One should book profit in sell side positions and should avoid new sell side positions in an oversold zone
This would w be clea arer from fig gure below.
e illustrates overbought o visible Figure and oversolld zones for spot Nifty. It is clearly v that in i most of the cases prices p have corrected from overb bought zone e and similarly prices ha ave rallied from oversold d zone. b. Loo ok for Diverg gences- Divergences are of two type es i.e. positiv ve and negat tive. Positive Divergen nce-are form med when pr rice is makin ng new lows s, but MFI fa ails to break previous lo ows. This div vergence sug ggests a rev versal of tren nd from dow wn to up. Fig gure illustrates Nifty ma aking new lo ows, where a as MFI fails t to break previous lows.
e illustrates Nifty makin ng new low ws whereas MFI fails to make new w low, Figure finally y Nifty trend reversed fro om down to o up. Negat tive Diverge ence-are formed when p price is mak king new hig ghs, but MFI fails to make new high h. This diverg gence sugge ests a reversa al of trend fr rom up to do own.
Figure e below illus strates Nifty making new w highs, whe ere as MFI fa ails to make e new high.
Figure e illustrates Nifty makin ng new high hs whereas M MFI fails to make new high, finally y Nifty Future trend reve ersed from u up to down.
DS BOLLINGER BAND Bollinger bands ar re trading ba ands develo ped by John n Bollinger. It con nsists of a 20 0 period sim mple moving g average w with upper a and lower bands. The upper band is 2 standard d deviation a above the m moving average and sim milarly tandard dev viation below w the movin ng average. T This makes t these lower band is 2 st bands s more dynamic and ada aptive to volatility. This w would be cle earer from f figure below w
Figure e illustrates Bollinger B ba nd plotted o on Nifty price e chart.
Interpretation of Bollinger Bands • Mr. John Bollinger described following important interpretation of Bollinger bands in projecting price trends. • Big move in price is witnessed on either side when bands tightens/contracts as volatility lessens. • The upper band act as area of resistance and lower band act as area of support. • When prices move outside the band, it signifies breakout, hence continuation of the trend. • Bottoms and tops made outside the band, followed by tops and bottoms made inside the band suggests reversal of the trend.
Day trading Day trading means buying and selling a stock within the same day. The positions are closed before the market close for the trading day. Day trading is about discipline and training of mind. It is about waiting in the trenches till the right opportunity appears. The goal of a day trader is to capitalize on price movement within one trading day. Day traders maximize profits by leveraging large amounts of capital to take advantage of small price movements in highly liquid stocks or indexes. Because of the nature of financial leverage and the rapid returns that are possible, day trading can be either extremely profitable or extremely unprofitable, and high-risk profile traders can generate either huge percentage returns or huge percentage losses. Some day traders manage to earn millions per year solely by day trading. - Advantages of day trading Zero Overnight risk: One of the best advantages of day trading is ability to close your position at or before the end of the trading day. Since positions are closed prior to the end of the trading day, news and events that affect the next trading day’s opening prices do not affect your portfolio. When you open and close your position before the trading day ends, the risks of holding a stock overnight are erased. A traditional trader’s profits can disappear overnight with traditional, long-term trading, but with day trading your profits are secure as long as you close your positions before the end of the trading day. No overnight crises or calamities in the financial markets can affect your income for that day. Increased leverage: Unlike positions trading where you would have to have high levels of investment to put up in the market to gain a profit, in day trading it is
quite the opposite. Day traders usually need to put up less money to get into day trading and succeed at it. Because of low margin requirements for day trades you enjoy a greater leverage on your trading capital. This increased leverage can multiply your profits. Profit in any market direction: Unlike long term investors who keep their stocks for long duration to capitalize only bull market, day traders can take advantage of both rising and falling market. Day traders can often take advantage of a struggling market by utilizing short-selling trading strategies to take advantage of falling stock prices. The ability to lock in profits even as markets fall throughout the trading day is extremely useful during bear market conditions. High returns: If successful, the rewards of day trading can far exceed the risks. Of course if you begin day trading it will not always mean that you get high returns all the time. In the beginning you have to learn the ins and outs and fluctuations of the market to keep up. However, over time, you will hone a certain skill to make day trading profitable for you. Unlike in ordinary stock market trading or position trading, day trading only requires you to trade intensely within market hours. Day trading requires discipline and time management, but it also affords an individual to make their own hours without a manager or boss standing over their back. And, in addition to the amount of money an individual can make form the comfort of their own home, day trading offers individuals many advantages they will not encounter in the more traditional forms of trading stocks and other financial instruments. - - Risks associated with day trading Day trading can be very risky. Not being able to manage losses, or letting them run, is biggest reason why day traders lose money. Day traders should not risk the money that they cannot afford to lose. It is essential that you have the discipline and proper knowledge to succeed in day trading. You need to have an
internal system of checks and balance to make sure you don’t take too many risks or begin to overtrade. You need to learn how to take a loss, because losses will occur, especially at the beginning stages. The rewards of day trading are high, but so are the risks. - Possibility of large losses Depending on the decisions made during the day, a trader could either make or lose huge amount of money. You should be prepared to suffer severe financial losses; this is part of the process. Losses are inevitable. Nobody makes money everyday. Many novice day traders suffer severe monetary losses in their first months of trading, and couldn’t stay in the game long enough to see a profit. - Demands of day trading Day trading requires a lot of time and attention paid to the markets, trends, technical indicators and national and international news regarding capital markets. A lot of time has to be put to focus the market hours. In addition to the time commitment, day trading requires a lot of study outside of your trading hours. An intensive amount of knowledge is needed in order to be successful at this highly demanding profession. - Stress Stress is a routine part of every day trading job. Stress and anxiety arises while tracking various movements within few minutes. In addition to this, the job requires that you make quick decisions concerning the acquisition or selling of securities, with intensive time constraints. - Overtrading Overtrading means taking highly risky trades or/and trading too large shares. Novice day traders generally get overwhelmed with the fast pace of day trading
and let their emotions, instead of their knowledge and analysis, make the decisions for them. - Borrowed money Day traders rely heavily on exposure provided by broker or buying stocks on margin. Borrowing money to trade stocks always holds some risks. Day traders utilize the leveraged money to increase returns. If not successful, this could lead to the trader losing large sums of money, and possibly an accruement of debt. This is why it is very important to have knowledge of the basics of day trading before venturing into the field. - Understanding market trends The focus of a day trader is on watching the stocks movement on regular basis. They tend to follow a stock’s momentum and make a quick transaction before it changes course. Since day traders intend to make profits on all major and minor stock movements, it is very important that they have knowledge of market trends, technical analysis and investment charts. If this knowledge is absent form a day trader’s skill base, then in spite of making profits, he may run into huge losses. - Out-of-pocket expenses Starting out as a day trader can cost a lot of money out of pocket. These expenses can include: software (and hardware), commissions, manuals, and other resources. It is very important to develop a budget for these out-o-pocket expenses before entering the arena of day trading. - Technology Operational problems like power outages, software/hardware issues, disrupted internet connections etc. could hamper your day trading.
Strategies for day trading: Scalping: Scalping is one of the most popular strategies. Scalping is a trading style focusing on taking profits on small price changes, generally immediately after one enters a trade becomes profitable. It requires a strict and aggressive exit strategy because one large loss could wipe out the several small gains realized. Having the right tools such as a live feed, a direct-access broker and the propensity to execute many trades is required for this strategy to be successful. A scalper’s main objective is to take as many small profits as possible. Fading: Fading involves shorting stocks after rapid moves upwards. This strategy involves a considerable amount of risk. But it is also more profitable; and can work well for novice traders as it does not involve extensive technical analysis. The fading strategy is based on three assumptions: i) the stock is overbought, ii) early buyers are ready to begin taking profits and iii) existing buyers may be scared out. Although risky, this strategy can be extremely rewarding. Here the price target is when buyers begin stepping in again. Daily pivots: This strategy involves profiting from a stock’s daily volatility. For many years, traders and market makers have used pivot points to determine critical support and/or resistance levels. This is done by attempting to buy at the low of the day (LOD) and sell at the high of the day (HOD). Pivots are extremely useful tool for range-bound traders to identify points of entry and for trend traders and breakout traders to spot the key levels that need to be broken for a move to qualify as a breakout.
- Momentum trading
Momentum trading is when a trader sees a stock price picking up and joins it. This strategy usually involves trading on news releases or finding strong trending
moves supported by high volume. The investor will take a short or long position in the stock anticipating that the momentum of the stock will continue. Here the price target is when volume begins to decrease and bearish candles start appearing. -- Momentum trading Strategies: Momentum traders are truly a unique group of individuals. To engage in momentum trading, you must have the mental focus to remain steadfast when things are going your way and to wait when targets are yet to be reached. Unlike other traders or analysts who dissect a company’s financial statements or chart patterns, a momentum trader is only concerned with stocks in the news. These stocks will be the high percentage and volume movers of the day. Momentum trading requires a massive display of discipline, a rare personality attribute that makes short-term momentum trading one of the more difficult means of making a profit. Let’s look at a few techniques for successful momentum trading. Techniques for entry Dr. Alexander Elder had designed an impulse system for momentum trading. To identifying appropriate entry points the system simultaneously uses two indicators: • Exponential moving average - EMA is used to measure market inertia i.e. for finding uptrends and downtrends • Moving Average Convergence-Divergence – MACD measures market momentum. When EMA rises, the inertia favors the bulls, and when EMA falls, inertia favors the bears. To measure market momentum, the trader uses MACD histogram, which is an oscillator displaying a slope reflecting the changes of power among bulls and bears. When the slope of the MACD histogram rises, bulls are becoming stronger. When it falls, the bears are gaining strength. The system
issues an entry signal when both the EMA and MACD move in the same direction, and an exit signal is issued when these two indicators diverge. If signals from both the EMA and the MACD histogram point in the same direction, both inertia and momentum are working together toward clear uptrends or downtrends. When both the EMA and the MACD histogram are rising, the bulls have control of the trend, and the uptrend is accelerating. When both EMA and MACD histogram fall, the bears are in control, and the downtrend is paramount. Times You trade The unfavorable time for momentum traders is during lunch (12 - 2pm), where volume dries up and the moves are choppy to fl at. So momentum traders should limit the times they trade to the first and last hour of the day trading session. This is because volatility is very high during these two time slots. Techniques for exiting positions The key to being a successful momentum trader is to know when to exit the position. Once you have identified and entered into a strong momentum trade i.e. when daily EMA and MACD histogram are both rising, you should exit your position at the very moment either indicator turns down. Since momentum traders initiate positions during the most volatile times during the trading day, sharp corrections are commonplace. This is why it is imperative that prior to plunging into the momentum trade; the traders must become acclimated to the speed of the market.
Introduction Dow Theory is named after Charles H Dow, who is considered as the father of Technical Analysis. Dow Theory is very basic and more than 100 years old but still remains the foundation of Technical Analysis. Charles H Dow(1851-1902) ,however neither wrote a book nor published his complete theory on the market, but several followers and associates have published work based on his theory from 255 Wall Street Journal editorials written by him. These editorials reflected his belief on stock market behavior. Some of the most important contributors to Dow Theory are • Samuel A. Nelson- He is the first person to use the term Dow Theory and. he selected fifteen articles by Charles Dow for his book The ABC of Stock Speculation • William P. Hamilton-He wrote a book titled The Stock Market Barometer which is a comprehensive summary of the findings that Charles H Dow and Samuel A. Nelson have gathered. • Robert Rhea- He wrote a book titled The Dow Theory. • George E Schaefer- He wrote a book titled How I Helped More than 10000 Investors to profit in Stocks. • Richard Russell- He wrote a book titled The Dow Theory Today. - Principles of Dow Theory The Dow Theory is made up of six basic principles. Let’s understand the principles of Dow Theory.
First Principle: The Stock Market Discounts All Information The first principle of Dow Theory suggests that stock price represents sum total of hopes, fears and expectation of all participants and stock prices discounts all information that is known about stock i.e. past, current and above all stock price discounts future in advance i.e. the stock market makes tops and bottoms ahead of the economy. It suggests stock market discounts all information be it interest rate movement, macroeconomic data, central bank decision, future earnings announcement by the company etc. The only information which stock market does not discount is natural calamities like tsunami, earthquake, cyclone etc. Second Principle: The Stock Market Have Three Trends Dow Theory says stock market is made up of three trends • Primary Trend • Secondary trend • Minor Trend Dow Theory says primary trend is the main trend and trader should trade in direction of this trend. It says primary trend is trader’s best friend which would never ditch trader in this volatile stock market. If primary trend is rising then trend is considered rising (bullish) else trend is considered falling (bearish). The primary trend is the largest trend lasting for more than a year. The primary trend is considered rising if each peak in the rally is higher than previous peak in the rally and each trough in the rally is higher than previous trough in the rally. In other words as long as each successive top is higher than previous top and each successive bottom is higher than previous bottom, primary trend is considered rising and we say markets are bullish. This would be clearer from (Figure 1)
(Figure 1) re 1) illustrat tes that each successive e top that is s D, F, and H are higher than (Figur previo ous tops an nd each suc ccessive bot ttom that is s E and G are higher than previo ous bottoms s, hence prim mary trend is s considered d rising. The primary p tren nd is conside ered falling if each pea ak in the rally is lower than previo ous peak in the rally an nd each tro ough in the rally is lowe er than previous trough h in the rall ly. In other words as lo ong as each successive bottom is lower than previous bo ottom and each succe essive top is s lower tha an previous top, prima ary trend is considered c falling and w we say markets are bea arish. This w would be cle earer from (F Figure 2)
(Figure 2) (Figur re 2) illustrates that eac ch successiv ve bottom th hat is D, F, and H are lower than previous p bottoms and each e succes sive top tha at is E and G are lower than previo ous tops, hence primary trend is con nsidered falling.
Dow Theory says s secondary y trends are e found within the pr rimary trend d i.e. ctions when n primary tr rend is risin ng and pullb back when primary tre end is correc falling g. More prec cisely secondary trend iis the move against the e direction o of the prima ary trend .T The seconda ary trend u usually lasts s for three weeks to t three month hs. This wou uld be more clearer from m (Figure 3) & (Figure 4). . (Figur re 2) illustrates that eac ch successiv ve bottom th hat is D, F, and H are lower than previous p bottoms and each e succes sive top tha at is E and G are lower than previo ous tops, hence primary trend is con nsidered falling. Dow Theory says s secondary y trends are e found within the pr rimary trend d i.e. correc ctions when n primary tr rend is risin ng and pullb back when primary tre end is falling g. More prec cisely secondary trend iis the move against the e direction o of the prima ary trend .T The seconda ary trend u usually lasts s for three weeks to t three month hs. This wou uld be more clearer from m (Figure 3) & (Figure 4). .
(Figur e 3) ure 3) illustrates primar ry trend is ri sing and A-B, C-D, E-F is Primary (Figu Trend and B-C, D-E D is Secon ndary Trend. Here secondary trend d is correctio on in the rising mar rket.
(Figur re 4)
(Figure 4) illustrates primary trend is falling and G-H, I-J, K-L is Primary Trend and H-I, J-K is Secondary Trend. Here secondary trend is pull back in the falling market.
Dow Theory says that secondary trend consist of short term price movements which is known as minor trends. The minor trend is generally the corrective move within a secondary trend, more precisely moves against the direction of the secondary trend. The minor trend usually lasts for one day to three weeks. The Dow Theory says minor trends are unimportant and needs no attention. If too much focus is placed on minor trends, it can lead to total loss of capital as trader gets trapped in short term market volatility. Third Principle: Primary Trend Have Three Phases The Dow Theory says primary trend have three phases • Accumulation Phase • Participation Phase • Distribution Phase The Dow Theory says that the accumulation phase is made up of buying by intelligent investor who thinks stock is undervalued and expects economic recovery and long term growth. During this phase environment is totally pessimistic and majority of investors are against equities and above all nobody at this time believes that market could rally from here. This is because accumulation phase comes after a significant down move in the market and everything appears at its worst. Practically this is the beginning of the new bull market. The participation phase is characterized by improving fundamentals, rising corporate profits and improving public sentiment. More and more trader participates in the market, sending prices higher. This is the longest phase of the
prima ary trend during which largest price e movement t takes place e. This is the e best phase e for the tech hnical trader r. The distribution phase is characteriz zed by too o much optimism, ro obust fundamental and d above all nobody at this time believes that market c could declin ne. The gene eral public now feels com mfortable b buying more and more in the marke et. It is du uring this phase p that those inve estors who o bought during accum mulation pha ase begin to sell in anticiipation of a decline in th he market. T This is time when w Techn nical Analyst should look k for reversa al in the tren nd to initiate sell side position p in the stock market. m Thre ee phases of primary trend woul ld be cleare er from (Figu ure 5)
(Figur re 5) illustrat tes – • Accu umulation phase p from April 2003 3 to June 2 2003 during g which no obody belie eved that markets co ould rally b but intellige ent investor r took buy side posi itions in the stock marke et. • Part ticipation ph hase from Ju uly 2003 to January 200 04 during w which largest t and long gest price mo ovement occurred.
• Distribution phase from February 2004 to May 2004 during which smart money closed buy side positions in the market.
Fourth Principle: Stock Market Indexes Must Confirm Each Other Charles H Dow believed that stock market as a whole reflected the overall business condition of the country. In other words stock market as a whole is a benchmark indicator to measure the economic condition of the country. Dow first used basis of his theory to create two indexes namely (i) Dow Jones Industrial Index and (ii) Dow Jones Rail Index (now Transportation Index).Dow created these two indexes because those days U.S was a growing industrial nation and urban centers and production centers were apart. Factories have to transport their goods to urban centers by rail road. Hence these two indexes covered two major economic segments i.e. Industrial and transportation. Dow felt these two indexes would reflect true business condition within the economy. According to Dow (a) Rise in these two indexes reflects that overall business condition of the economy is good. The basic concept behind this is that if production is increasing then transportation of goods to customer should also increase i.e. performance of companies transporting goods to consumer should improve. According to Dow Theory, two averages should move in the same direction and rising Industrial Index is not sustainable as long as Transportation Index is not rising. (b) The divergence in these two indexes is a warning signal. Under Dow Theory, a reversal from a bull market to bear market or vice versa is not signaled until and unless both indexes i.e. Industrial Index and Transportation Index confirm the same. In simple words, if one index is confirming a new primary uptrend but another index remains in a primary downtrend, then there is no clear trend.
Basically Dow Theory says that stock market will rise if business conditions are good and stock market would decline if business conditions are poor. Fifth Principle: Volume Must Confirm the Trend Dow Theory says that trend should be confirmed by the volume. It says volume should increase in the direction of the primary trend i.e. • If primary trend is down then volume should increase with the market decline. • If primary trend is up then volume should increase with the market rally. Basically volume is used as a secondary indicator to confirm the price trend and once the trend is confirmed by volume, one should always remain in the direction of the trend. Sixth Principle: Trend Remains Intact Until and Unless Clear Reversal Signals Occur As we are dealing in stock market which is controlled by only one “M” i.e. Money and this money flows very fast across borders. Hence stock prices do not move smoothly in a single line, one day it’s up next day it might be down. Basically Dow Theory suggests that one should never assume reversal of the trend until and unless clear reversal signals are there and one should always trade in the direction of the primary trend. - Significance of Dow Theory It’s Dow Theory which gave birth to concept of higher top-higher bottom formations and lower top-lower bottom formations which is the basic foundation of Technical Analysis. This helps investors to improve their understanding on the market so that they could succeed in their investment/trading decisions. Most of the technical analysts follow this concept
and if you go through any technical write up, you would definitely find this concept. - Problems with Dow Theory • One misses the large gain due to conservative nature of a trend reversal signal i.e. uptrend would reverse when stock prices make lower top-lower bottom formation and downtrend would reverse when stock prices make higher tophigher bottom formation. • Charles Dow considered only two indexes namely Industrial and Transportation which is not major part of the economy today. Technology and financial services i.e. banking constitutes major part of the economy today. We have seen in 1998-1999, one sided rally in Nifty led by technology stocks. In this rally none of industrial stock participated and if one waited for buy confi rmation from Industrial and Transportation indexes then one must have missed the classic bull run of technology stocks.
TRADING PSYCHOLOGY AND RISK MANAGEMENT
Introduction It is generally noticed that when we invest or trade our focus is on potential gains rather than dwelling on possible losses. Traders are often so confi dent about their trades that they push back their minds and don’t think that something could go wrong. But in order to be successful trader, we must keep our mind open to the potential losses and we should know how to manage and control those losses. If you are making huge profits in the market on a very small or average trading account, it is most likely that you are not implementing sound money management. May be you are lucky for one or two days that has earned you windfall profits. But you have exposed yourself to obscene risk because of an abnormally high “Trade Size.” If you continue trading in this manner, probabilities indicate that very soon you would land up with series of losses and you may loose your entire capital. Trading, like every other business, needs to start with a certain amount of equity or “seed capital”. Traders remain in business so long as they have this seed capital with them. Many traders start and end their trading capital in just one month! By not controlling risk and by using improper “Trade Size” a trader can go broke in no time. It usually happens like this; they begin trading, get 5 to 8 losses in a row, don’t use proper position size and don’t cut their losses soon enough. After 5 to 8 devastating losses in a row, their funds become too small to continue trading. Novice traders tend to focus on the trade outcome as only winning and therefore do not think about risk. They don’t ask themselves, how much can they afford to lose on this trade and hence they fall prey to the “risk-of-ruin” outcome. Failure to implement good money management program will leave
you subject to the deadly “risk of ruin” exposure leading eventually to a probable equity bust. Professional traders focus on the risk and take the trade based on a favorable outcome. Thus, the psychology behind ‘Trade Size’” begins when you believe and acknowledge that each trade’s outcome is unknown when entering the trade. You either adjust your “Trade Size” or tighten your stop-loss before entering the trade. In most situations, the best method it to adjust your “Trade Size” and set your stop-loss based on market dynamics. During “draw-down” periods, risk control becomes very important and since good traders test their trading systems, they have a good idea of the probabilities of how many consecutive losses in a row can occur. Taking this information into account, allows the trader to further determine the appropriate risk percentage to take on each trade. Let’s talk about implementing sound money management in your trading formula so as to improve your trading and help control risk. The idea behind money management is that given enough time, even the best trading systems will only be right about 60% to 65% of the time. That means 40% of the time we will be wrong and have losing trades. For every 10 trades, we will lose an average of 4 times. Even certain trading set ups with higher rates of returns nearing 80% usually fall back to a realistic 60% to 65% return when actually traded. The reason for this is that human beings trade trading systems. And when human beings get involved, the rates of returns on most trading systems are lowered. Why? Because humans make trading mistakes, and are subject from time to time to emotional trading errors. If we are losing 40% of the time then we need to control risk! This is done through implementing stops and controlling position size. We never really know which trades will be profitable. As a result, we have to control risk on every trade regardless of how sure we think the trade will be. If our winning trades are
higher than our losing trades, we can do very well with a 60% trading system win to loss ratio. In fact with risk control, we can sustain multiple losses in a row without it devastating our trading account and our emotions.
Risk is there in every business and proper risk management is road to success for any business. Equity trading is a lucrative business which is very rewarding but this reward is not risk free, as theoretically and practically risk free trade does not exist. Because risk is associated with the reward, it becomes essential to manage risk in order to protect one’s capital. Risk management is very essential for trading as markets have potential to take back all life time profits in just few bad trades. Risk managements help in preserving initial capital and accumulated profits so that one can stay alive long enough in financial markets for wealth creation, thus it provides biggest edge in trading. --Components of risk management - Stop loss Stop loss is an integral part of risk management. Stop loss is an order placed to buy or sell security once certain price is reached. It is basically designed to limit the amount of loss on buy/sell position. In fact by placing the stop loss one is just closing the losing position and limiting the amount of loss which can increase beyond imagination. - Analyze reward risk ratio Before initiating a trade, the trade should analyze reward risk ratio. On a conservative basis if the said ratio is less than 1.5 then one should not initiate the trade.
- Trail stop loss Initially stop loss is placed to protect one’s capital on a losing trade, but once the trade is in profit stop loss should be so moved that trade is at zero risk even if trailed stop loss gets triggered. - Booking profit Profit is the only goal for which we all trade. But at the same time profit is profit only when it is realized otherwise its notional profit. Hence one should book profit at predefined target levels and one should not be carried away by one’s emotions specially greed when prices are near to predefined target levels. - Use of stop loss A trader should always put Stop Loss and trade a fraction of his capital. It is very important for the trader to have sound knowledge in the area concerned and should be comfortable with the trading system. He should be aware that it is possible and inevitable to have a losing streak of five losses in a row. This is called drawdown. This awareness will help the traders prepare as to how to control risk and choose their trading system. What we are striving for is a balanced growth in the trader’s equity curve over time. - Qualities of successful traders: • Always use stops • Trade size should be determined on the basis of trading account equity, and stop loss price for every trade. • Never trade more than 10% on any give sector • Never exceed a loss of 2 to 5% on any given trade • Always trade with risk capital, money you can afford to lose.
• Never trade with borrowed money and don’t overtrade based on the time frame you have chosen to trade
GOLDEN RULES FOR TRADERS
Want to trade successfully? It is very important to choose good positions over the bad ones. Poor trading sense leads to a heavy loss of both the confidence and money. Without a system of discipline for your decision-making, impulse and emotion will undermine skills as you chase the wrong stocks at the worst times. Many short-term players view trading as a form of gambling. Many short-term players without planning or discipline jump in the market. The occasional big score reinforces this easy money attitude but sets them up for ultimate failure. Without defensive rules, insiders easily feed off these losers and send them off to other hobbies. Technical Analysis teaches traders to execute positions based on numbers, time and volume. This discipline forces traders to distance themselves from reckless gambling behavior. Through detached execution and solid risk management, short-term trading finally “works”.
-- Do’s and Don’ts in trading: The science of trend allows you to build systematic rules to play these repeating formations and avoid the chase: • Forget the news, remember the chart. You’re not smart enough to know how news will affect price. The chart already knows the news is coming. • Buy at support, sell at resistance. Everyone sees the same thing and they’re all just waiting to jump in the pool.
• Don’t chase momentum if you can’t find the exit. Assume the market will reverse the minute you get in. If it’s a long way to the door, you’re in big trouble. • Trends test the point of last support/resistance. Enter here even if it hurts. • Trade with the TICK not against it. Don’t be a hero. Go with the money flow. • If you have to look, it isn’t there. Forget your college degree and trust your • instincts. • The trend is your friend in the last hour. As volume cranks up at 3:00pm don’t expect anyone to change the channel. • Avoid the open. They see YOU coming sucker • Bulls live above the 200 day, bears live below. Sellers eat up rallies below this key moving average line and buyers to come to the rescue above it. • Price has memory. What did price do the last time it hit a certain level? Chances are it will do it again. • Big volume kills moves. Climax blow-offs take both buyers and sellers out of the market and lead to sideways action. • Trends never turn on a dime. Reversals build slowly. The first sharp dip always finds buyers and the first sharp rise always finds sellers. • Bottoms take longer to form than tops. Greed acts more quickly than fear and causes stocks to drop from their own weight on message • Beat the crowd in and out the door. You have to take their money before they take yours, period.
Rules to Stop Losing Money
• Don’t trust others opinions - It’s your money at stake, not theirs. Do your own analysis, regardless of the information source. • Don’t break your rules - You made them for tough situations, just like the one you’re probably in right now.
• Don’t try to get even - Trading is never a game of catch-up. Every position must stand on its merits. Take your loss with composure, and take the next trade with absolute discipline. • Don’t believe in a company - Trading is not investment. Remember the charts and forget the press releases. • Don’t seek the Holy Grail - There is no secret trading formula, other than solid risk management. So stop looking for it. • Don’t forget your discipline - Learning the basics is easy. Most traders fail due to a lack of discipline, not a lack of knowledge. • Don’t trade over your head - Concentrate on playing the game well, and don’t worry about making money. • Don’t chase the crowd - Listen to the beat of your own drummer. By the time the crowd acts, you’re probably too late…or too early. • Don’t trade the obvious - The prettiest patterns set up the most painful losses. If it looks too good to be true, it probably is. • Don’t ignore the warning signs - Big losses rarely come without warning. Don’t wait for a lifeboat to abandon a sinking ship. • Don’t count your chickens - Profits aren’t booked until the trade is closed. The market gives and the market takes away with great fury. • Don’t forget the plan - Remember the reasons you took the trade in the first place, and don’t get blinded by volatility. • Don’t join a group - Trading is not a team sport. Avoid act in, flashes and financial TV. Your judgment may be more correct than all of them put together • Don’t have a paycheck mentality - You don’t deserve anything for all of your hard work. The market only pays off when you’re right, and when your timing is really, really good. • Don’t ignore your intuition - Respect the little voice that tells you what to do, and what to avoid. That’s the voice of the winner trying to get into your thick head.
• Don’t hate losing - Expect to win and lose with great regularity. Expect the losing to teach you more about winning, than the winning itself. • Don’t fall into the complexity trap - A well-trained eye is more effective than a stack of indicators. Some time Common sense is more valuable than a complex set of indications. • Don’t confuse execution with opportunity - Overpriced software won’t help you trade like a pro. Pretty colors and flashing lights make you a faster trader, not a better one. • Don’t project your personal life - The outcome of your trade is definitely likely to get affected by the situation at your home. Get your own house in order before playing the markets. • Don’t think its entertainment - Trading should be boring most of the time, just like the real job you have right now. If one could sum up the single most important aspect of successful trading it would be to stick with the trend as much as possible. “The Trend is your friend until the end when it bends.” Anonymous If you have been around trading for any time at all you’ve probably encountered that quotation a thousand times by now. But in all those times have you ever really tried to understand what this well worn expression is saying to you? Whoever was the first to say, it knew the secret to making money in the markets. Trading with trend is not just another axiom that rolls off the lips of traders, but it is the very core of successful trading. As almost any successful trader will tell you, there are infinitely better opportunities to trade with the trend then against it. So, if it is such a commonly accepted truism among traders that the best way to make money in the markets is by trading with the trend, why is it that so many traders chose to take positions against the predominant market direction?
I suppose one reason is that within each of us is a rebel. It is part of human nature to go against the *crowd*. Our society embraces individualism and as a result everyone strives to be an individual. Sometimes this is interpreted as doing the opposite as everyone else. There is something romantic about being the underdog. Everyone roots for the underdog. Traders have even coined the term *contrarian* to describe the strategy of trading against the trend. Now does that mean that you will never lose money by trading with the trend? Of course not! Every trend ends and reverses eventually which will stop you out. Furthermore markets make regular pullbacks as a part of an ongoing trend which could stop you out prematurely. You should always trade with the trend until it hurts. You should follow the trend until you can not possibly conceive how the market could go any higher/lower. And then you should trade with the trend some more. One must Paper trade it. I think you’ll be pleased with the results. One of the things that the majority of folks find most challenging about trading is determining which is more important: a good entry or a good exit? As has been pointed out so many times before, the three components of good trading are market analysis, money management and mental attitude. As every experienced trader knows, market analysis is the easiest part to learn. However, that by itself only turns you into a good PAPER trader! There is a world of difference between paper trading and real trading. And the difference is the emotional impact trading has on us, when we trade with real money.
Emotions make a trader hang on to a losing trade, because he has the hope that the market will turn around and get him back to break-even, causing him to ride a bad trade into oblivion. Emotions will keep a trader out of entering a perfectly good trade, because he is afraid of this being a losing trade. Emotions make a trader exit a good trade, right after he entered, because the normal jiggles in price make him doubtful of his analysis and afraid of losing on this trade, thus making him miss out on what could be a long ride. Trades are rarely entered at the low point of a V-shaped bottom. The great majority of our trade entries are followed by some form of ‘chop’, right after entry. This applies to both position trades and day trades. The time frames may be different (days, in case of a position trade, and minutes, in case of a day-trade), but the principle is the same: What looked like a perfectly well thought-out trade before the order was placed can turn into a struggle with fear and doubt. Once these emotions surface, it becomes difficult to stick with the original plan. Many traders then take the easy way out, by escaping to the safety of being on the side lines. And there goes another good trade without them! A carelessly placed entry almost always results in such misery. On the other hand, take those incidences when a buy was made right at the low. What a nice and relaxed feeling, when the market goes in the right direction immediately after entry! So what, if there are some wiggles! There is a profit, even if it’s only a small profit. Now it is so much easier to keep a cool head and make the right decision.
Therefore, it is my belief that a trader should strive to perfect his entry techniques first, and worry about the exit later on. Here are some tips for the newcomer, aimed at relieving trading-stress: Use stops! Many traders trade without stops. They argue that they don’t need to place stop loss orders because they are closely monitoring the market. This may be so, but the intense monitoring required, and the ever present possibility of a quick adverse price move, create unnecessary additional stress. A well placed stop can do a lot to relieve the tension associated with a new position. Keep your positions small! Many newcomers try to make a quick killing by using positions that are too large for their account, or trading a stock that’s too volatile for them. A sure way to increase the stress level! Accept yourself for what you are! There are many ways to trade the markets. But we all have different personalities, and many trading styles simply don’t fit our personality and emotional set-up. Some people are natural long-term investors; some people are natural daytraders. Find out what suits you best, and then throw away those books that try to turn you into a person you can never be. Choosing the Right Markets to Trade An often overlooked part of trading is choosing the right markets to trade. Most traders do not pay too much attention to the mix of markets they follow. New traders are sometimes at a loss as to how many markets or sectors to trade and which ones to follow. It is a common misconception that you need to follow a lot of stocks to be a successful trader. This is not true. For most traders, choosing six to eight stocks to follow should be adequate. It is important to allow some
diversification among the markets you follow however, so as to allow for the maximum number of trading opportunities. You would not want to choose all power stocks to follow, or all grains if trading in commodities. By taking one or two picks from each category you should have enough of a cross section to catch most of the opportunities within that category.
Importance of discipline in trading
Overtrading is the biggest reason for failure of people in trading While there is no definitive rule for how many times you can (or should) trade, new traders should be especially cautious not to overtrade. Industry statistics show that 90% of new traders will not make it to their first anniversary. Why? Overtrading is one factor that has been identified as a definite ‘no-no’. So why do traders overtrade? • Traders overtrade because of the reason that they are hooked on the rush that comes form being in the markets • Some overtrade because they feel they that will miss a golden opportunity if they don’t trade. • Some traders overtrade because their system does not have specific enough entry criteria to keep them out of bad trades. • Many traders in a hurry to start trading don’t wait for a good opportunity but start trading with a first trade that looks good. • Some traders overtrade because they feel that the more they trade, more the money they will be able to make. This is the real secret in making more money with your trades: learning to identify the best market opportunities. There are three positions that a trade can have in the market namely: long, short or fl at. But the trader’s don’t realize this. Many of them feel that they have to be constantly in the market for which they need to acquire either a long position or a short position. It is equally important to recognize that the third option, being fl at, is as legitimate a position as the first two. Being flat allows you to watch the market set up so that you can best take advantage of the market when it is ready. This is what traders mean when they tell you *not to chase the markets.*
It is important to learn to wait for the markets and let them come to you. Then your job as a trader is to be ready for them. Buy, sell, or stand aside. Just make sure it’s the right decision at the time. There are many methods to build superior trading habits. Good trading habits will make trading a part of routine, rather than a task. Getting in the habit of doing everything exactly to plan will boost trading profits, marking one more step in the path to financial freedom. • Trading discipline – One’s own trading plan is very important to success. It should be followed strictly. Emotions have no place in trading and it could easily lead to losing of money. Proven techniques and strategies should not be edited for any reason; follow the plan and let it work for you. • Understanding risk - Difference between gambling and investing is what is called as managing risk. Profitable traders can quickly calculate how much of a drawdown they are willing to incur before cutting a position. It is important to have a plan for pruning losses and minimizing the damage of drawdown. • Stick to your niche - Niche trading is considered to be the best strategy to remain profitable. Sticking to an area in which one specializes is the best way to minimize losses. If one is best in high volume trading, then only trade during periods of high volume. Finding your trading niche will help you to become more a more efficient trader. • Look at every time frame - Even when trading short 5 minute ticks, it is important to evaluate all timeframes for market data. It just might happen that a 100 day moving average is acting to support your position. You’ll never know this unless you take the time to study all timeframes rather than just a few. Long term trends can and do impact short term trading positions. Day traders are more susceptible to trading in only one timeframe because of how timesensitive their investments are. Swing traders are probably used to checking multiple timeframes for entry points.
• Trading is affected by emotion – It is difficult to get away with the trading. Holding open positions can increase the amount of stress. Day traders should try and limit the exposure and keep the stress at lower level. • Trade as your capital allows –High levels of margins can be easily exceeded by the day traders that greatly exceeds there trading capital. Exceeding the credit limit can be very dangerous and it can accumulate losses as fast as gains. Momentum trading with many different entry points can end up in costly mistakes if your account becomes overextended. Even the best traders in the market have trading sessions that are less than optimal. Human nature dictates that we make mistakes, and trading the stock market is no exception. Subsequently, there is always room for improvement, whether you are a novice trader or a seasoned veteran. Stick to your Guns – Running from the market is no solution. One should try to stay in the game and earn profits. Sticking to the trading plan and enacting trading discipline are the best ways to produce profits. Set stop losses and take profits – The most profitable trading is one in which we “Set and forget”. Once should remember to place exit along with placement of trade. Technical analysis will tell you the best price or selling (near resistance) and the best place for buying (near support). Support and resistance points are the best places to put limit orders. Don’t watch minute to minute – The minute to minute movements should be avoided by the traders. It is difficult to have a potentially profitable trade after having minute to minute movements. There is no reason to get out of a trade for quick profits if you’re in for the long haul. Small ups and downs create temporary stress and can reduce swing traders to day traders. Niche trading works because you’re specialized in your own area.
Eliminate high probability trading - You wouldn’t expect to make consistent profits at the roulette wheel, and you shouldn’t do the same with your investments. The active, professional trader only takes quality trades opposed to quantity of trades. Accept that full-time day trading is rough – It is very difficult to trade on a full time daily basis. The ups and downs of full-time day trading are very stressful. Stress will make you think differently and trade differently. A professional trader will need to find ways to vent their frustrations as bad days do happen to the best of traders. Don’t get attached –one should not be too attached with the stock. Investor should be ready to dump it off when the price is right. Pick swing traders or day traders - Know exactly what kind of trader you want to be. It is difficult to be very good at swing trading while following short term movements of day trading. Define what kind of strategy you want to follow and stick with it. Talk to other traders – Communicate with other traders and share their experiences. Aim should be to get trading down to a point where it comes naturally to you.
TECHNICAL ANALYSIS OF INFOSYS LTD AND TCS
-INFOSYS LTD SCRIP ID Group / Index Face value Scrip Code ISIN Industry Mkt. Cap. Full / Free Float (Cr.) Delivery / Var+ELM % Market lot Listing Date INFY A / S&P BSE SENSEX 5.00 500209 INE009A01021 IT Consulting & Software 1,67,435 / 1,42,320 31.51 / 12.50 1 NA
Result View in (Million) (in Cr.) Revenue Net Profit EPS Cash EPS OPM % NPM % Annual Reports Dec-12 9,398.00 2,265.00 39.46 43.78 35.09 24.10 Sep-12 9,129.00 2,342.00 40.78 44.95 37.17 25.65 FY11-12 31,254.00 8,470.00 147.51 161.39 38.04 27.10
Ownership (DEC – 12) Promoter & Promoter Grp Indian Foreign Public Institution FII DII Non Institution Bodies Corporate 9,20,85,078 9,20,85,078 -48,21,51,088 34,02,22,720 23,28,69,587 10,73,53,133 14,19,28,368 35,32,720
Owne ership Patte ern
s (Annual) Ratios OPM M NPM M EPS CEPS % % 38.04 27.10 147.51 161.39
S OF INFOS SYS LTD (m monthly) CLOSING PRICES MO ON JA AN FE EB MA AR AP PR MA AY JU UN JUL LY AU UG SE EP OC CT NO OV DE EC 2008 1503.9 90 1546.8 85 1430.15 1753.75 1957.55 1734.75 1583.30 1748.50 1397.55 1381.6 65 1240.6 60 1117.8 85 2009 1305.5 50 1231.3 30 1324.1 10 1507.3 30 1602.0 00 1776.9 90 2063.9 90 2132.3 30 2308.4 40 2205.4 40 2383.9 95 2605.2 25 2010 2476.7 0 2601.6 0 2615.1 0 2736.1 5 2657.6 5 2788.5 5 2788.8 5 2707.1 0 3041.0 0 2969.6 0 3049.4 5 3445.0 0 2011 3116.30 0 3003.05 5 3236.75 5 2905.95 5 2791.85 5 2907.40 0 2766.80 0 2342.80 0 2533.80 0 2875.20 0 2607.55 5 2765.05 5 2012 2743.35 2875.40 2864.95 2462.60 2439.85 2502.55 2227.40 2373.25 2534.00 2363.50 2436.60 2318.50 2013 2788.75 2906.00 2945.75
S OF INFOS SYS LTD (ye early) CLOSING PRICES
YEAR R CL.PR RI. 2008 1117.8 85 2009 2605.25 2010 3445 2011 2765.05 2012 2318.50 2 2013 2 2945.75
TATA CONSULTANCY SERVICES LTD
SCRIP ID Group / Index Face value Scrip Code ISIN Industry Mkt. Cap. Full / Free Float (Cr.) Delivery / Var+ELM % Market lot Listing Date Result View in (Million) (in Cr.) Revenue Net Profit EPS Cash EPS OPM % NPM %
TCS A / S&P BSE SENSEX 1.00 532540 INE467B01029 IT Consulting & Software 3,04,729 / 91,418 34.47 / 12.50 1 25-08-2004
Annual Reports Dec-12 12,366.95 3,217.11 16.40 -33.37 26.01 Sep-12 11,925.56 3,722.76 18.99 -39.61 31.22 FY11-12 38,858.54 10,975.98 55.95 -36.21 28.25
Ownership (DEC – 12) Promoter & Promoter Grp Indian Foreign Public Institution FII DII Non Institution Bodies Corporate 1,44,75,65,910 1,44,75,65,910 ---50,96,55,086 41,90,09,662 29,27,51,329 12,62,58,333 9,06,45,424 62,23,578
Owne ership Patter rn
Ratios s (Annual) OPM M % NPM M % EPS CEPS
36.21 28.25 55.95 ---
CLOS SING PRICE ES OF TCS (monthly) (
MON JAN N FEB B MAR APR R MAY JUN N JUL LY AUG G SEP P OCT T NOV V DEC C 2008 8 875.25 874.30 810.90 919.55 1029.2 25 858.80 832.55 812.4 45 662.75 537.4 45 558.05 478.10 2009 9 511.95 480.60 540.00 623.20 699.75 389.70 526.40 527.00 619.35 626.20 687.20 749.75 2010 0 735.45 5 761.00 0 780.80 0 766.00 0 742.00 0 751.15 5 841.10 0 843.85 5 922.55 5 1051.8 80 1076.7 70 1165.0 05 2011 1 1157.1 15 1112.9 95 1182.5 50 1163.6 60 1158.8 80 1180.3 35 1134.4 45 1040.6 60 1037.5 50 1114.2 20 1113.1 10 1161.2 25 2012 2 1130.5 50 1221.0 05 1167.8 85 1244.9 90 1245.8 80 1277.5 55 1240.6 65 1347.3 30 1294.0 00 1313.4 40 1312.8 85 1258.5 55 2013 3 1342.75 1514.75 1567.55
CLOSING PRICES S OF TCS (y yearly)
YEA AR CL.P PR 2008 8 478.1 10 2009 749.75 5 2010 1165.05 2011 1161.25 2012 1258.55 2013 1567.55
CHARTS OF SE ECURITIE ES
riod Per Cha art Type Pre edefined Date Range
Daily Candles stick 5 year
Upper Indicators Bollinger Bands 20,2 Parabolic SAR 0.02,0. .2
Lo ower Indica ators Volum me RSI 14 4
Research of TC CS
Peri iod Chart Type Pred defined Date e Range
Daily Candlestic ck 5 year(Jan n 2008 to Ma ar2013)
Upper Indicators Bollin nger Bands 20,2 Parabolic SAR 0.02,0.2
Lower Indic cators Volu ume RSI 14
RESE EARCH OF F SECURIT TIES IN DETAIL
INFOS SYS LTD
2008 Jan 20 008 to June 20 008
Band is exp panded thus It shows more v volatility in the market. Some e Candles are w within the upperb band and some e are on middle e band (20 SMA). In the first week band is expanded. e It sh hows increased d volatility in t the stock. End o of the e breaks upper band of bb it iis breakout. Ba and is contract in the last week thus week price price move ed to downside e. Price broke e the lower ban nd, it is breakd down. Band expanded in this s month. Increa ased volatility. Band is exp panded. More volatility. Cont tinuously price e moving upsid de. Candles are e within the upper band. b It broke 3 times to upp per band. Breakout. First 3 wee ek band is expa anded it shows s increased vola atility in the st tock but in the last week band d is contract thus it shows low w volatility. Band is con ntract in this month. m price is moving down. . low volatility means low de emand of stock in this month.
MAR APR MAY JUN
PARABOLIC SAR JAN FEB MAR APR MAY JUN
Dots are below the candles, it shows buy signal for traders. Dots are below the candles, it shows buy signal. Dots are above the candle, it shows sell signal. In the last week dots are below the candle thus it shows buy signal. Dots are below the candles, it is buy signal. Buy- sell signal in beginning two weeks. Buy trend in the last two weeks of this month. Buying trend in the first week and last three week it shows sell signal because dots are above the candles.
JAN FEB MAR APR MAY JUN In mid of Jan, volume shows more sell pressure in this stocks. In the last week of Jan and in the Feb we see selling pressure is over and investors bought the shares. Volatility in the price and it is reflecting in the volume. The first week of this months buying is increased but last week of this months again selling pressures is more. Till mid of the month, Selling was more but in the second last week buying is increased slightly. Mid of the Apr volume is increased and it indicates upper trend of stock price. Volume is increased 0.025 % up and down trend of the stock. Volume is decreased and it shows negative trend in the stock price.
JAN FEB MAR APR
Mid of Jan and end of the month of Jan , we see there oversold of stock and stock is below the support line of 30 In this month stock price was nearby 50 and some times /in the first week it was above 50 thus it shows bullish trend of stock Price touched the support level but didn’t cross it and moved upward. It shows bullish trend there. Till mid of this month price was nearby the 50 but end of the week it touched the resistance level. it shows continuous upper trend or it suggested keep the stop loss order for the opening position. Stock price may be will go down In the first week of the may price is crossed the resistance level it suggest bullish trend or suggest square up your position or keep the stop loss order for your position. After the first resistance level crossed and price touched the resistance level two times but not cross it. Thus it suggests price will reverse from 1950 and definitely go down from this level. short the position or square up your position on this level In the mid of the June RSI was below the level of 50 thus it indicates in this month continuously stock price moving/ going down side. In a chart last move of RSI is upward thus It is showing a bullish trend in the last point
2008 July 20 008 to Dec 20 008
BB JULY Y AUG G SEP
2008 More volat tility, selling pr ressure in the s stock and bear rish trend. Mostly can ndles are within n the upperban nd thus it show ws bullish trend d. Band is con ntract till mid of o this month, it shows less v volatility. A can ndle broke the upper band d, it shows new w high and the n price is reversed. From the e second week k of this month band is expan nded and cand le are in the lo ower band. it sh hows bearish wer band it sho ows bullish tren nd of the stock k signal and some candles broke the low Strong bullish trend. Cand dles broke the e upper band and moved from m lower band t to nd to upper band and in last w week, it crosse ed the upper b band and reach hed middle ban till 1450 ,it shows bullish trend. It is bre eakout thus it s shows reverse in the price. Bearish tre end. Mostly can ndle are within n the lower ban nd. In the seco ond last week candles cro ossed the lowe er band there w we see the bull lish trend and price crossed middle ban nd and reached d till 1300 and again revered from that leve el Till first we eek, candles we ere in the lowe er band and it s shows bearish trend in the second week. candle broke the lower b band. It shows the bullish trend and price moved till 1200.
PARABOLIC SAR JULY AUG SEP OCT NOV DEC
2008 Sell signal. Dots below the candles thus it shows buy signal. Dots above the candles thus it shows sell signal. Dots below the candles thus it shows buy signal. In the first week dot are the below the candles it shows buy signal and after whole month it shows the bearish trend / sell signal. In the first week dot are the below the candles it shows buy signal and after whole month it shows the bearish trend / sell signal.
VOLUME JULY AUG
SEP OCT NOV DEC
2008 From mid of this month, volume shows bearish trend. In the first week of this month volume shows the bullish trend but in the mid of this month it shows the bearish trend and after that sometimes it is increased or sometimes it is decreased. Volume is decreased continuously. It increased in the first week of this month then almost constant. In the second week it is increased but not more, otherwise it was constant or somewhere less. Volume is slightly increased till mid of this month but later again it is decreased.
RSI JULY AUG SEP OCT
2008 Price will move up it crossed the 50 levels and price reached at 1570 level. It moved above the 50 levels. It is bullish signal. It moved down 50 levels and crossed support level. Bearish signal. Broke out the support level and till it is moved above the 50 level and price reached till 1430 level. NOV RSI is below 50, it is bearish trend. DEC RSI is below 50, it is bearish trend.
2009 Jan 20 009 to June 20 009
BB JAN FEB
2009 Band is Invis sible. Candles are within the upp per band it sho ows bullish tren nd till the mid of this month and and in the e mid of this and then it is reversed. Candles are with in the lower ba d is contract. month band In the first week w candles are in the lower r band it shows bullish trend. From the second week candles are within w the upp er band it show ws bullish tren nd and candles pper band cont tinuously. it in dicated sell sig gnal and price reached at 130 00 broke the up level. In the first week w of the mo onth, candles b broke the uppe er band, it is sh howing sell sign nal. Beginning of f this month ca andle broke th e upper band i it shows the se ell signal and in n the mid of th his month, can ndles are within n the upper ba and thus it again shows sell signal. Brand d expanded. In ncreased the vo olatility. In the beginning of second d week candles s broke the upp per band I shows sell signal. ded thus it sho ows, increased volatility in this month band expand
PARABOLIC SAR JAN FEB MAR APR MAY JUN
2009 Dots are below the candle, it shows buy signal. Till mid of this month, it shows buy signal and after second week, it shows sell signal because dots are above the candles. In the first week it shows the sell signal and after that candles below the candles it shows buy signal. In the first week of this month, dots are above the candle it shows sell signal and after that candles are below the candles it shows buy signal. Till mid of this month it shows buy signal and after till end of the month it shows sell signal. In the beginning of the week and in the last week it shows sell signal and after one week to till second last week, it shows buy signal.
VOLUME JAN FEB MAR APR MAY JUN
2009 Volume is increased in this month, it crossed above the 1 M. In the first week, volume was showing bullish trend but in the second week, it shows bearish trend and last two week, it shows bullish trend. Volume shows bullish trend. there are green candles are more on the volume bar. Beginning two weeks of this month, volume shows volatility in the market and after that it shows slightly bullish trends. Till mid of this month, volume is volatile but it was constant and slightly bullish but end of this week again it shows bearish trends. More volatile of stock. It suggested buy, sell, buy.
RSI JAN FEB
MAR APR MAY
2009 Nearby 70 level and price reached to 1300, bullish trend. In the beginning of this month price was up because RSI was nearby 70 but in the mid of this month it moved below the 50 level of RSI. It was showing bearish trend. End of the month it was nearby 50. Very fastly moved the RSI down to up side and it touched the 70 level of RSI. it is bullish trend. Bullish trend. In the last week it crossed the 70 level of resistance thus it shows there overbought position in this stock. In this month it crossed 2 times resistance level and in the second last week it touched only 50 level but didn’t crossed it and again moved to upside it shows there bullish trend. In the first week RSI touched the resistance level one time. In the last week of this month it was very near to again resistance level but not touched and moved to down side. but in this month RSI shows bullish trend.
2009July 2009 to Dec 20 009
BB JULY Y AUG G
2009 In the last week, w band wa as expanded. It t shows more v volatility in the e stock. Till beginning of this mon nth, band was e expanded and in the second week, it was t shows less vo olatility in the s stock. In the be eginning of sec cond week som me contract. it candles we ere within the lower4 l band it t shows bearish h trend but aga ain there is one candle broke the lower band b it shows p price will rever rse there, it will go up. Band is exp panded and it shows s the bull ish trend of sto ock because ca andles are within the upper band. In n the last week k, candle crosse ed the upper b band thus it re sell signal. shows ther Low volatility. Band is con ntracting from m the beginning g to the end of f this month. Ti ill ws sell signal be ecause most o of candles within the lower mid of this month it show f second last week there were up and d down trend can ndles are on th he band and from MA (middle e band )more volatility v in the e stock. In the first week of this month, m it was s howing sell sig gnal. candles m moved to up to a broke a po oint of the lowe er band it show ws there reverse again price downside and was up of this t stocks candles are within n the upper band and some c candles broke the upper band b again her re shows rever rse in the price e and sell signa al. From second d week, band d is expanded thus t Increased d the volatility in the stock. Band is con ntract in the fir rst week; it sho ows less volum me, less volatilit ty. Candles are e within upperband, it indicates bullish tr rend in the sto ock.
PARABOLIC SAR JULY AUG SEP OCT NOV DEC
2009 In the first week sell signal and then till end of this month, it shows buy signal. Buy - sell again buy signal. Till last week of this month, buy signal and in the last week, it shows sell signal. Till mid of the month, it shows sell signal and then volatile trend shows –buy, sell, buy, sell. In the first week, PS shows sell signal and after buy trends is indicated in this month and in the last week, it shows again sell trends of the stock. In the first week, it shows sell signal and after buy signal in remaining period of the month.
VOLUME JULY AUG SEP OCT NOV
2009 In the first week, volume was less and after for the remaining period of month, it shows bullish trend. Till mid of week, very less volume and it indicates increased the volatility in the stock , then till end of the month it shows reverse in the trend and it is bullish. Bullish trend but less volume. In the second and third week of this month, bullish trend and except of these two weeks volume was less and negative trend of the stock. Volume is increased above the 2.0 M, but trend is bearish in the first week. again In the last week also it shows negative trend of this stock and second and third week it shows bullish trend of the stock and very less volume. Bullish trend but very less volume.
RSI JULY AUG
SEP OCT NOV DEC
2009 In this month, two times RSI touched the resistance level. It shows bullish trend. Decreasing the price of stock till mid of the month and it crossed 50 level here it shows negative or sell signal. RSI didn’t touch the support level and turned back to again resistance level and it touched it that level in the last week it shows bullish trend. Bullish trend. In the third week of this month it shows overbought of stock and in the last week again it is near to mid level (50 levels). Bearish trend. Three times it crossed 50 levels downside. Bullish trend. It touched the resistance level one time in the third week of this month. Bullish trend in the third week it shows overbought position in this stock.
2010 Jan 20 010 to June 20 010
BB JAN FEB
2010 Band is invisible Band is Big g expanded. It shows s more vo olatility in this stock in the fir rst week – Downtrend d /bearish tren nd then trend is s reversed. Fro om the second week, in this s stock trend is bullish. candles are a within the u upperband. On nce it crossed the upper ban nd s bullish trend till end of this month. . Very very vola atile this stock in but still it showed this month. Band is exp panded but les ss as compariso on to the previ ious month. Bu ullish trend in t the last week it t reversed the trend of this s stock. it is beco ome bearish tre end. more vola atile. Two times, , it broke the upper u band. More volat tility in the stoc ck. In the first week, it was b bearish/downsi ide. Candles ar re in lower band d and one time e it broke the lo ower band. af fter the last thr ree weeks of th his month it was w upside mea ans it indicates s bullish trend o of this stock. Band is con ntract here as comparison c of f last three months and it sho ows less volatil lity in the stock. Candles C are within the lower r band and it sh hows bearish t trend. Band is exp panded. it show ws more volatiility, more dem mand of the sto ock in the first week. it shows buy signal because cand dles are within upper band. O One candle bro oke b thus agai in it gives sell s signal. Wee see e here price moved down the the upper band e MA (middle band). In the last t three weeks c candles are wit thin the upper r band and five e oke the upper band thus we see the last ca andle on the middle band me eans times it bro price again n slightly revers sing here
JAN FEB MAR APR MAY JUN
2010 First and the last week of the month, PS is showing sell signal in the stock and second and third week indicates upper trend. In the first week shows sell signal and remaining month of period shows bullish trend of this stock. Expect of last week, Parabolic SAR shows bullish trend in this stock for this month. In the last week, PS shows bearish trend. In the first week, Bearish trend and remaining three weeks of this month trend is bullish. Bearish trend in whole of the month. In the beginning of this week down trend in this stock but then PS shows bullish trend in this stock.
VOLUME JAN FEB
MAR APR MAY JUN
2010 Except of second week volume shows bearish trend and volume is less. Volume is very less and up and down trend in this stock in this month from the mid of the month it shows bullish trend in this stock because green candles are more than red. Volume is less. Up and down trend in this stock in this month. Volume is less except of second week. In the second week volume was nearby 2.0 M. it shows increased demand of the stock. Volume is less and trend is bearish thus demand of stock is less. Volatility in this stock is also less. Little increased volume as compare to the previous month but still less. Demand increased and slightly volatility also increased in this stock.
RSI JAN FEB
2010 Bullish but it has moved to downside, nearby 50 levels. In the first week, it touched the support level thus it shows downtrend and it reversed from there to upper side then it was moved continually upper side thus we see here in the last week RSI crossed 50 levels and it reached nearby to resistance level. Bullish trend. It crossed two times resistance level thus it shows here overbought position in the stock and then it reversed in the last week and crossed the 50levels downside and reached nearby the support level. In the first week, it was near the 50 levels and in the second week, it moved to upper side and reached nearby the resistance level again it reversed and in the third and fourth week we see the RSI was near the 50 levels. Bearish trend because it was below the 50 levels. In the third week, it moved to the down side and in the last week it touched the support level and again reversed. In the last week it was nearby the 50 levels. In the beginning of the first week, it shows bullish trend and then it reversed to down side, it was nearby the 50 levels. From the ending of the second week, it was above the 50 levels and it was nearby the resistance level.
2010July 20 010 to Dec 20 010
BB JULY AUG
2010 Band is Invisib ble but In the ending e of the l ast week band d was contracted. Band is contra act. In the begi inning of the fiirst week. cand dles are on the e MA (middle band) but late er it moved to upper side and d once it broke e the upper band thus it shows down trend t thus we see s in the seco ond and third a and fourth wee ek of this month, candle es are within th he lower band . In the ending g of the last we eek one time a candle broke the t lower band d thus it shows s reverse in thi is stock means s bullish trend of this stock. In the first we eek and Band is s contract. Vol ume and dema and of this stock is less thus less volatility in i this stock, we w see here a candle is with hin the lower b band then from m the second we eek to end of the t month ban nd is huge expa anded, it shows increased volatility and volume v and de emand of the s stock. Candles are within the e upper band. In the first we eek, band is exp panded and th hen it was cont tract till mid of f this month. Candles are within w the uppe er band and the en trend of thi is stock is reversed thus we see here cand dles are within the lower ban d thus it show ws here bearish trend in this stock. In the first we eek, band is litt tle expanded th hen it was contract. Bullish-b bearish and again bullish trend t in this sto ock in this mon nth. Bullish trend because b candle es are within th he upperband.
AUG SEP OCT NOV
2010 From beginning to near the second week, trend is bullish because dots are below the candles and then remaining weeks of the month Ps shows bearish trend in this stock. In the first week bullish trend and remaining weeks of this month Ps shows the bearish trend. Bullish trend. Candles are within the upper band. Till mid of this month trend of this stock was bullish then from third week to end of this month Ps shows bearish trend of this stock. Bearish-bullish-bearish and bullish trend of this stock in this month. in the beginning of the first week dots above the candles and then dots are below the candles again dots are above the candles then below the candles. Bullish trends. Dots are below the candles.
VOLUME JULY AUG SEP OCT NOV DEC
2010 Increased volume specially in the second week. it was above 600 k. It shows down-up and down trend of this stock. Less volume means less volatility. Volume was above the 200 k. it shows bullish trend in this month. Volume increased till mid of this month, it shows bullish trend. volume was above 400 k. Less volume. Up-down-up trend. In the first week, it touched 200 k level then it was near 200 k level. It shows bullish trend and more demand of this stock and more volatility
RSI JULY AUG SEP
2010 It was nearby 50 levels but above this level thus it is bullish. In the first week bullish then bearish below the 50 levels. In the first week it was near 50 levels but above this level thus bullish. Continuously are moving to the upper side and on a point it crossed resistance level. Here it shows the overbought in this stock. Till mid of this month, it shows bullish trend. Two times touched the resistance level then it reversed to downside. Beginning of the third week, it was near the 50 levels then it moved to downside. Near the 50 levels. Bullish. It crossed the resistance level in the third and fourth week of this month thus RSI shows overbought in this stock continuously.
2011Jan 20 011 to June 20 011
BB JAN FEB MAR R APR
2011 Band is Inv visible. Ending of o the last wee ek it was expan nded. Band show ws Bearish trend and It is Expa anded from be eginning of the e month to thir rd week of the month. In the last week of this month ba and is contract and bullish. Beginning three week of f this month ba and is contract t. It shows ther re down trend of a in the last week it is expa anded. It show ws upper trend of this stock. this stock and Band is exp panded hugely y in this month . it shows, vola atility is increas sed in this stoc ck. mid of this month, it show ws bullish tren nd because can ndles are within upper band s, It shows bea arish trend bec cause candles a are within the and in the last two weeks d. lower band Band is exp panded in the beginning b of th he first week o of this month and in the remaining weeks of this month m band is contract. Bear rish trend in th he whole mont th. w candles broke the low wer band thus h here band show ws reversed In the last week, trend in this stock. Till mid of this t month ban nd is contract a and then It is e expanded. In th he first week, candles /pr rice are/is mov ving downside to upper side. . In the beginning of second week, it wa as within the upper u band and d ending of the e second week k, it are within t the lower band d and even thre ee candles bro oke lower band d thus it shows s here bullish trend /reve erse trend of th his stock. In th e third week c candles are mo oving down side to uppersid de but still candles are within n the lower band. In the last week candles are within the upper band thus it show ws bullish trend d.
JAN FEB MAR APR
2011 Bearish trend because dots are above the candles. Down, Up, down, up, down trend of this stock in this month. Volatility is increased in this month of this stock. Down, Up, down, up trend of this stock in this month. Up and downtrend in this month. This stock is huge volatile in this month. One big candle is covered upper middle and lower band after that we see candles are within lower band and those indicate the bearish trend of this stock. Bearish trend in this whole month. Bullish, bearish and bullish trend of this stock in this month. Three candles are broken the lower band in the mid of this month after that we see candles are moving down side to upper side. It shows bullish trend of this stock.
VOLUME JAN FEB MAR APR MAY JUN
2011 Less volume. Bearish trend. Less volume. Bearish trend. Volume is less. In the last week of this month it gives bullish signal. In the first week, volume is less. In the mid of this month, volume suddenly increased and it crossed the 2.0 M level. Volume is very less. Volume is little increased as comparison to the previous month. First and last week it gives buy signal.
RSI JAN FEB
APR MAY JUN
2011 In the starting three weeks, RSI is invisible but in the last week, RSI above and near the 30 levels. It shows bearish trends of this stock. Till the mid of this week, it shows bearish trend of this stock because RSI is near 30 levels (support level) in the beginning of first week it crossed two times support level thus it shows here oversold position of this stock. In the last two week it was between 50 and 30 levels thus it shows sell signal. Till third week it shows sell signal and in the last week it moved above the 50 level thus it shows here bullish trend of this stock. In the last week RSI reached near resistance level. In the beginning first and half week, it was near resistance level then it moved to downside then it was near support level thus it shows here down trend in this stock It touched two times support level thus it shows bearish trend of this stock in this whole month. In the beginning first and half week, it was near the 50 levels then it moved to down side and touched the support level and again moved back to upper side here we see the bullish trend in this stock.
2011July 20 011 to Dec 20 011
BB JULY AUG SEP OCT
2011 Band is Inv visible. In the beginning of this week, w it is contr ract and then i it is huge expanded. It shows s tility. Bearish tr rend in this mo onth. Candles a are within the lower band. more volat Band is little expanded as s compare to p previous month h. Down then up trend in this is month. stock in thi Band is little expanded as s compare to p previous month h. Except of be eginning of som me e first week, band is showing bullish trend. Candles are within the upper days in the band. In the mid of this month m and in th he last week ca andles broke the upper band d ws here revers se in the price/ /trend. thus it show Band is exp panded in the first f week then n it is contract and again in th he last week it is expanded. Bearish trend of this stock. Till mid of this t month ban nd is expanded d then it is contract. Price/candles are on M MA.
PARABOLIC SAR JULY AUG SEP OCT NOV DEC
2011 Sell signal. Sell signal because dots are above candles. In the first week, sell signal then buy signal because dots are below the candles. In the beginning of the first week, sell signal then buy signal. Sell signal because dots are above the candles. Buy signal, dots are below the candles.
VOLUME JULY AUG SEP OCT NOV DEC
2011 Volume is increased above 600 K or near the 700 K. stock is volatile in this month. Bearish. More volatile and bearish. Volume increased near by 500 K. It is near by 500 K. Bearish in the first week and then bullish. It is more volatile. Volume is too much increased in this month it touched 900 K. bullish in this month. Volume is decreasing. Bearish trend in this month. Volume is constant.
RSI JULY AUG SEP OCT NOV DEC
2011 RSI is touched two times to the support level thus it indicates down trend of the stock price. Oversold position in this stock two times. RSI is increasing from downside (above 30 level) to upperside (above 50 level) and it reached near resistance level. It touched the resistance level. Bullish trend. It is moving upper side to downside it moved below 50 level and reached near the support level. It is moving nearby 50 levels. Price is not showing proper trend. in the last week, RSI is moved above 50 levels, trend is reversing here.
2012Jan 2012 to June 2012 2
BB JAN FEB
MAR R APR
2012 Band is Exp panded in the last week of th is month. Band is exp panded thus we e see here stoc ck is more vola atile in this mo onth. Bullish tre end in the begin nning of the th hree weeks but t in the ending g of the last we eek, candles are e moved to downside d which are within th he upper band . In the second d week three candles are e broke the upp per band and iit shows price w will reverse. Band is con ntracting. Cand dles are on the MA and it indicates reverse trend of this stock. In the first week, band is contract and t then it too muc ch expanded. M More volatile s month. Two candles c broke lower band an nd two are out of the lower price in this band thus it i gives signal of o sell. Stock price is volatile in th he first week t hus band is ex xpanded too much in the first t t it is contra acted. In the fi rst week, it sh hows bullish tre end and then week and then bearish. Band is con ntract. Less volatile. In the fir rst and the seco ond week, can ndles broke the e upper band d thus we see here h slightly re everse trend in n this stock, can ndles are move ed to downsid de and those ar re on MA. In th he last week, st tock price mov ved upperside. .
JAN FEB MAR APR MAY JUN
2012 In the first and the half of the second week, PS shows buy signal then it shows sell signal because dots are above the candles. Buy signal in the beginning of the three weeks. In the last week, it shows sell signal. Except at one point in this chart, PS shows sell signal in this stock. Sell signal except of last three - four days of this month. In the first week, it shows buy signal then sell signal is showing but again In last three - four days of this month it is showing buy signal. Buy signal.
VOLUME JAN FEB MAR APR MAY JUN
2012 Volume is increased till 1.0 M. stock is volatile. Mostly Bearish trend in this month. Bullish trend even volume is less. Volume is constant. Volume is too much increased from second week. It touched 1.5 M. Volume is up and down. Bullish trend of this stock in this month.
RSI JAN FEB MAR APR MAY JUN
2012 In the ending of the second week, RSI touched the support level and moved towards upperside. Bullish signal. Two times RSI touched to the resistance level and moved to the downside. It shows, price is constant thus we see RSI near the 50 levels. RSI is showing oversold position of this stock in this month. It touched the support level a time and moved upperside. We see RSI here near the 50 levels in the last week in this month. In the mid of this month, RSI is near 50 level. except of mid period of this month RSI is near 50 levels.
2012July 2012 2 to Dec 2012 2
BB JULY Y AUG G
NOV V DEC
2012 Band is Inv visible. Band is Exp panded in the first f week then n it is contract in the second week. In the th hird and the fou urth week agai in it is expande ed. In the first week candles are within the lower band d then we see candles c are wit r band and it broke six times thin the upper upper band d then in this chart c we see ca andles are mov ved downside. In the beginning of first week, w band is e expanded and ending of the f first week, ban nd is gain from second week band is expanding. Candles are w within the contract ag upperband d till third week k thus we see h here bullish tre end then candl les broke uppe er band thus price / candles s moved down side. In the beginning of the fir rst week, band d is expanded a and then from the ending of the t beginning of the second w week, band is c contract thus V Volume is less first week to here. From m the ending of f the second w eek, band is ex xpanded. Bearish trend because candles are e mostly within n the lower ba nd. Band is exp panded in the first f week. In the second and d third week, b band is contract then again in the last wee ek band is sligh htly expanded. . Band is exp panded. In the beginning of t the first week, stock is bullish h and then it is s bearish. Ag gain in the last week it is mov ving to upper s side but not ab bove the MA th hus BB indicate es, stock price is constant in t the last week o of DEC.
JULY AUG SEP OCT NOV DEC
2012 Bearish trend. Bearish trend in the beginning of the first week then bullish tend then again in the ending of the last week it shows bearish trend. Bearish trend in the beginning of the first week then bullish tend then again in the ending of the last week it shows bearish trend. Bearish trend. Bullish, bearish and then bullish trend of this stock. Bullish, bearish and then bullish trend of this stock.
VOLUME JULY AUG SEP OCT NOV DEC
2012 Huge volume thus more volatile this stock in this month. Bullish trend in the second and third week of this month. Volume is less. Bullish tend specially in the second and third week. Volume is near 1.5 M. volume is increased huge in this month. Bearish trend of this stock. Volume reached two times near the 0.5 M. volume is increased in this month Volume is less.
RSI JULY AUG SEP OCT NOV DEC
2012 Oversold position in this month of this stock. It shows Bearish trend of this stock. It moved down side to upper side and touched resistance level one time. Bullish trend of this stock and moved towards downside. Overbought position in this stock and again RSI moved to the down side. It moved upperside to down side and reached near support level. It was below 50 levels. It shows bearish trend of this stock. In the mid of this month, it is near support level and moved again towards upperside, above the 50 levels. It is below the 50 levels. Bearish trend of this stock.
2013Jan 20 013 to Mar 20 013
BB JAN FEB MAR R
2013 Band is Inv visible. But candles are above e the MA mean ns it shows bullish trend in th he first week. price was constant. Band is exp panded in the first f week then n it is contract till third week then again it slightly exp panded. Bullish h trends becau se candles are e above the MA A. Band is exp panded and till l third week. it t is bullish then n it is moved to o downside.
PARABOLIC SAR JAN FEB MAR
2013 Bullish signal. Bullish signal. Bullish signal till third wee ek then bearish trend in the last week in th his stock.
VOLUME JAN FEB MAR
2013 Volume is increased it crossed 1.5 M level. Volume is less still bullish. Till mid of this month it is bullish then bearish.
RSI JAN FEB MAR
2013 Overbought position in this stock. It shows bullish trend. Overbought position in this stock. It shows bullish trend. Overbought position in this stock till mid of this month then it is near the 50 levels.
TATA A CONSUL LTANCY SERVICES S S
TCS Jan 20 008 to June 20 008
BB JAN FEB MAR R APR
2008 Band is hug ge expanded. Bearish B trend o of this stock. Band is hug ge expanded ti ill mid of this m month then litt tle contacting. Mostly bearish h trend. First t and third wee eks of this mon nth, it is slightly er side. y moved uppe Band is con ntract in the fir rst week then iit is expanding g. Bearish trend d of this stock because ca andles are with hin the lower b band. Band is ver ry much expanded in this mo onth. Bullish tre end of this stock in this mont th because most of candles are within the e upper band. I In the beginnin ng of the last er band thus w we see here som me candles are e moved to the e week candles broke uppe o MA and aga ain it reversed and moved to o upside. downside on Band is exp panded till third week then it t is little contra act. Bullish tren nd because candles are e within the up pperband. In th he last week ca andles broke upper band thu us it reversed downside. Band is exp panded in this month. It is hu uge expanded f from second w week to end of this month. Bea arish trend of this t stocks bec cause candles a are within the lower band.
JAN FEB MAR APR MAY JUN
2008 Bearish trend of this stock in this month. Till mid of this month trend is bullish then it is bearish trend in this stock. Till third week bearish trend then in the last week it shows bullish trend in this stock. Bullish trend till third week then it shows bearish trend. In the beginning of the first week bearish trend in this stock then PS shows bullish trend of this stock. Bearish trend is in this stock in this month.
VOLUME JAN FEB MAR APR MAY JUN
2008 Volume is increased and it reached near 500 k. bearish trend of this stock in this month. Volume is increased and it reached near 500 k. Volume is increased, it reached near 500 K. Volume is too much increased. Bullish trend. it touched 800 K levels. Very huge volume is increased in this month. Bullish trend. it touched 900 K levels. Volume is increased till 500 K but not more as like previous two months. Bearish trend in this stock.
RSI JAN FEB MAR APR
2008 Oversold position in the ending of the second week of this month. Bearish trend in this stock. It is near 50 levels thus it shows bearish trend in this stock. Bearish trend till mid of this month then it moved to the upper side. It touched the resistance level then moved to the downside then it was near 50 levels and again it moved above the 50 levels, upperside in the last week of this month. Bullish signal of this stock. Above the 50 levels and near the resistance level. Bullish trend. It moved upper side to down side. Crossed the 50 level down side and reached near support level. Bullish trend of this stock in this month.
2008July 2008 to Dec 20 008
BB JULY AUG
SEP OCT NOV DEC
2008 Band is Inv visible in the be eginning of we eks but in the ending of last week it is expanded. Band is exp panded in the first f week and beginning of t the second week. Price is showing co onstant in these weeks. Band d is contract in the ending of the second we eek and third and fourth wee ek of this mont th. Trend is bea arish of this sto ock in these weeks. In the first week, band is contract. From m the second w week band is co ontracting. end. Increased volatility. Bearish tre Band is hug ge expanded, it shows bearis sh trend of this s stock in this m month. Increas sed volatility. Band is con ntracting thus price is becom ming negative. Band is exp panded. Increa ased volatility. Bearish trend of this stock in n this month.
JULY AUG SEP OCT NOV
2008 Sell signal till mid of the third week. In the last week bullish trend is showing because dots are below the candles. Buy signal till third week of this month. In the last week, bearish signal is showing in this stock. In the first week, PS gives buy signal in this stock but then it is showing sell signal because dots are above the candles. Except of one point on a chart, PS is showing sell signal of this stock. Band is contracting in this month. From first week to beginning of the third week, dots are below the candles thus it shows buy signal but candles are within the lowerband. From the ending of the third week to last week it gives buy signal. Band is expanding. Bearish trend/sell signal in this month. Increased volatility in this stock in this month.
VOLUME JULY AUG SEP OCT NOV DEC
2008 Volume is increased. Till mid of this month, it shows bearish trend and then it shows bullish trend. Volume shows constant price in this month. After mid of this month it is decreasing. Volume is increased and it reached near 1.0 M in the ending of the third week. Too much volume is increased in this month. It touched 1.0 M level a time in the second week and then in the third week it crossed 1.0 M level. Volume is decreasing as comparison of last month but still it is above 0.5 M level. Volume is decreasing but it is above the 0.5 level.
RSI JULY AUG SEP OCT NOV DEC
2008 Price is constant. It is near 50 levels. Price is constant. It is near 50 levels. RSI indicates, Price is decreasing and in the last week, it touched the support level. Oversold position of this stock at that point. In this month, Two times it crossed 30 level / support level. Strong bearish trend of this stock in this month. Oversold position in this stock in this month. Bearish trend. RSI was near 30 and below the 50 level. In the last week it is above the 50 level. In the first week, price is constant then it is becoming negative.
2009Jan 20 009 to June 200 09
BB JAN FEB
APR MAY Y
2009 Band is Inv visible. Candles s are on MA th us it shows con nstant price. T Too much less volume. Band is too o much contrac ct in this mont h. Very less vo olume. Candles s are on MA till l third week k. In the last we eek those are m moved within l lowerband in w whole month trend of this stock is bear rish. Band is con ntract but little e expanded in t the last week. In the beginning of first wee ek, it shows dow wn trend of this s stock then in the second we eek, price is co onstant and the en price is mo oving upperside e. Band is little expanded but in the last w week it is contr ract again. Less s volume in this except of two p points of above the chart. stock even it shows little bullish trend e Band is con ntract but cand dles are within the upperban nd thus it indica ates bullish tre end of this stoc ck. Two times candles c broke t the upper band thus we see after this, sligh htly trend is rev versed in this stock. s Band is con ntract till mid of o this month t then band is ex xpanded. it sho ows more volatile in the price e of this stock. bearish trend in this month. .
JAN FEB MAR APR
2009 PS shows buy signal till third week and then sell signal is in last week. Sell signal in this month because dots are above candles. In the beginning of first week and ending of last week, PS is showing sell signal and in remaining weeks, it gives buy signal. Bullish trend from first week to mid of the third week and in the ending of the last week. bearish trend is in this stock in the ending of the third week and beginning of the last week. Buy signal till third week and in the last week it gives sell signal in this stock. Sell signal in the first, third and fourth weeks in this month. In the second week, PS is showing buy signal of this stock.
VOLUME JAN FEB MAR APR MAY JUN
2009 Volume is increased and it crossed 1.0 M level. Up and down trend is showing in this month. Volume is decreasing after the mid of this month. Volume is increasing from the second weeks. Huge volume. More volatile this stock in this month. It touched 1.0 M level. Volume is above 0.5 M. it shows bullish trend in the last week. Volume is above 0.5 M. it shows mostly bullish trend in this stock.
RSI JAN FEB MAR APR
2009 RSI is near 50 thus price is constant in this month. Price is decreasing in this month. RSI reached near the 30 level/support level in the last week. In the beginning of the first week, RSI is near support level then it is moved to upside and it crossed the 50 level and touched the resistance level. In the first week, RSI touched the resistance level then in the ending of the last week it crossed the resistance level here we see overbought in this stock. Mid of the month, price is weak because RSI touched the 50 level. In the beginning of first week, overbought in this stock thus we see here price is moving downside. RSI is near 50 levels in the ending of the first week and beginning of the second week of this month, it shows downtrend in this stock here. In the beginning of last week RSI touched again 50 level and again reversed from there to upside. Overbought position in the second week then immediately and continuously price fell down and crossed the support level. Strong sell signal in this stock.
2009July 2009 2 to Dec 2009
BB JULY Y
OCT NOV V DEC
2009 Invisible till third week an nd beginning o of the last week k. In the endin ng of the last w week panded it show ws more volatil ity in this stock. From the second week, Ba and band is exp shows bullish trend in thi is stock becaus se candles are within the upp perband. More volat tility is in this stock. Band is e expanded till m mid of this mon nth then It is contracting g. In First, seco ond and fourth week of this m month band is showing bullis sh trend in this stock. In the third week ca ndles are on M MA. Thus we se ee bearish tren nd. b constant or it will be move e downside. price will be Band is exp panding. Bullish h trend is in th his stock in this s month. Candl les are within t the upper band d. Five times it broke the upp per band thus i in the ending o of the last wee ek we see reversed there. In n the first week k, stock is less volatile but then increasing n this stock. volatility in Band is little expanded. In n the second w week of this mo onth, it is cont tracted. Till mid d of rish trend and then it is show wing bullish tre end in this stoc ck this month, it shows bear In the first week stock is bearish then it t is bullish. Mo ore volatility aft ter the mid of this t second week band is con ntract. month. In the Bullish tren nd is in this sto ock because can ndles are within the upper band.
JULY AUG SEP OCT NOV DEC
2009 Buy signal from the beginning of the second week to end of this month. First, second , and fourth weeks PS shows buy signal and in the third week, it shows sell signal. Buy signal because dots are below the candles. In the beginning of first week and after the mid of this month, buy signal. In the ending of first week and second week, PS is showing sell signal. In the first week, sell signal then buy signal. Buy signal because dots are below the candles.
VOLUME JULY AUG SEP OCT
2009 Volume is increased. it touched 4.0 M level. Buy signal in the stock. Volume is above 1.0 M level till mid of this month thus it shows buy signal and then trend is reversed. Volume is touched 1.0 M level. Bullish trend in this stock. bearish trend in the first week , it crossed 1.0 M level in this week then it is decreasing after that is increased and in the ending of the last week it is decreasing in this month and it touched two times 1.0 M level. Volume is increased. Buy signal. Volume is increased. Buy signal.
RSI JULY AUG SEP OCT NOV DEC
2009 Overbought position in this month. Overbought position in the first week of this month. buy signal. In the last week, it touched resistance level. Strong buy signal in this stock. Overbought position in the ending of second week and last week of this month in this stock. In the first week, it crossed the below the 50 levels then it reversed from that level. In the last week, it touched the 50 levels. Two times it crossed resistance level and one time it touched resistance level. Overbought position in this stock in this month. Overbought position in the third and the fourth week of this month. Strong buy signal.
2010Jan 20 010 to June 201 10
BB JAN FEB MAR R
APR MAY Y JUN
2010 Band is Inv visible and mor re volatile. In th he first and las st week. trend of this stock is s bearish. In the second an nd third week, trend is bullish h. Band is hug ge expanded in n the first and second week t then it is little contract. Till m mid of this mon nth bearish and d then bullish t trend in this st tock. Bullish tren nd till third week of this mon th. Candles are e within the up pper band. 8 times/8 candles broke up pper band thus s in the last we eek we see pric ce is reversed. tility in this sto ock in this mon th. More volat Band is exp panded. It show ws bearish tren nd in this month except of on ne point. Band is exp panded. Increa ased volatility. Bearish trend. Bullish tren nd till third week but in the la ast week bearish trend becau use candles are e moved within lower band d.
JAN FEB MAR APR MAY JUN
2010 In the first and last week, sell signal and second and third weeks, it shows buy signal. Till mid of this month, sell signal and then buy signal. Till third week, buy signal and in the last week, it is showing sell signal. In the first week, sell signal. In the second week, buy signal then in third and fourth week again PS gives sell signal. Sell signal till third week. In the last week, it shows buy signal in this stock Till the third week, buy signal and then sell signal.
FEB MAR APR MAY JUN
2010 Too much increased volume in the second week and it shows bullish trend of this stock. It crossed 1.0 M level. In the first, Third and fourth week, it is showing negative signal/trend in this stock. In this month, stock is more volatile. Volume is less, below the 0.5 M level. In this first week, it gives negative/sell signal and then it indicates, buy signal in this stock. Volume is increased and it crossed 1.0M level. Bullish trend till third week then it shows bearish trend in this stock. In the second week volume is more volatile. It is near 1.0 M level. bearish trend of this stock in this month. Volume is less. Almost bullish trend is in this stock. Volume is less. Stock is less volatile. In the first and last week, it shows bearish trend in this stock.
RSI JAN FEB
2010 Price is constant. RSI is on 50 levels. RSI near 50 levels. Till mid of this month, it is below the 50 level thus it shows bearish trend in this stock. From third to fourth week of this month, it moved above the 50 level thus it shows bullish trend in this stock. Overbought position in this stock in the mid of this month. Bullish trend till the third week. In the last week, it moved to downside and crossed 50 level and reached near support level. In the first week, price is constant because RSI on 50 level then it moved to upper side and we see it near resistance level in the second week and it reversed from that point and crossed 50 level downside in the third week. in the last week it is near support level. Bearish trend is in this stock in this month. RSI is touched two times support level and one time it is crossed the support level. We see oversold position in this stock. In the first week, RSI near 50 levels thus it shows price is constant of this stock. In the second and third week it moved up side and in the last week again it crossed 50 level downside thus it shows here bearish trend in this stock.
2010July 2010 to Dec 2010
BB JULY Y
2010 Band is invisible. Almost buy signal in th his month beca ause candles a are above the M MA nd. In the endin ng of the last w week band is means candles will be in the upper ban expanded. In the first week, band is expanded thu s it shows mor re volatility and d increased t stock in this week then b band is contrac ct thus it show ws less volume. volume in this down-up-d down-up-down n trend in this s stock thus it sh hows how muc ch volatility in t this stock in thi is month. In the beginning of first week w and endin ng of last week k, it gives bearish trend in thi is pt of these per riods stock is b bullish. Band is expanded in the last two we eeks, stock excep it shows more volatility and a volume in t this stock. In the first week band is expanded e but we see a small candle broke the upper ban nd e slightly rever rsed here thus it shows beari ish trend in thi is thus price / candles is/are stock. In th he second and the third week k, band is contract thus it sho ows less volatil lity and less vo olume in this st tock. In the last t week band is s expanded thu us it shows mo ore volatility an nd more volum me in this stock k. Band is exp panded till mid d of this month h then it is cont tract. Till mid o of this month it t shows bullish trend in thi is stock becaus se candles are within the upp per band and a after ndles are withiin the lower ba and thus it is gi iving sell signal the mid of the month can about this stock. Band is little contracting till mid of this month then it t is expanded. A Almost buy sig gnal o point because candles ar re within the upper band. except of one
JULY AUG SEP OCT NOV DEC
2010 Almost buy signal. In the ending of the last week, it is showing sell signal. down-up-down-up-down trend in this stock thus it indicates sell-buy-sellbuy- sell signals in this stock. In the beginning of first week and ending of last week, it is showing sell signal except of these periods PS is giving buy signal. Till mid of this month. Ps is giving sell signal then it gives buy signal in this stock. Till mid of this month, it gives buy signal then sell signal in this stock. Almost buy signal except the ending period of second week.
VOLUME JULY AUG
SEP OCT NOV DEC
2010 Volume is too much increased from the second week and it crossed 1.5 M level. strong Bullish trend in this stock. Bullish trend of this stock in the first week thus it touched 0.5M level a time and crossed this same level after that. then trend is reversed from there bull still bullish. Volume is above 0.5 M level. Bullish trend of this stock in this month. Stock is above 1.0 M level. Bullish trend in this stock. In the first and last week volume is showing bullish trend but it is less. Volume is near 0.5 levels but below this level. In the mid of this month and last week of this month, it is showing bullish trend in this stock.
RSI JULY AUG SEP
2010 Overbought position in this month in this stock in the last week. RSI is showing Strong positive signal in this stock for buying. Overbought position in the first week. In the second and third week stock is near resistance level. In the last week it moved downside and touched 50 levels. In the first week, it is below the 50 level and reversed to upside thus we see it near resistance level in the second week. In the third week it crossed resistance level. Strong bullish trend in this stock in this month. Strong bullish trend in this stock in this month because one time it touched the resistance level and two times it crossed it thus here we see overbought in this stock. In the whole month, it is above the 50 level. Two times overbought position we see in this stock in the first week. In the third week, it is below the 50 level thus it is showing revered in the price here. In the last week again it moved to upper side. In the first week, it is near resistance level and in third week, it crossed resistance level thus here we see overbought position in this stock and again in the last week, it is above resistance level. Strong bullish trend of this stock because in the whole month RSI is above the 50 level.
2011Jan 20 011 to June 20 011
BB JAN FEB
APR MAY Y JUN
2011 Invisible ba and and it is sh howing more vo olatility in this stock. Ending of the last wee ek, band is too o much expand ded thus it sho ows more volat tility in this sto ock. Band is too o much expand ded till mid of t this month and d from the seco ond week, it is s little contra acting. More volume v more v olatility in this s stock in this m month. Bearish h trend most tly candles are within the low werband and so ome are on MA A. The beginn ning of the first t week, band is s expanded the en it is contrac cted then again n from the th hird week it is expanding thu us it shows mor re volatility in t this stock. Beginning of o first week, it t shows bullish h trend then til ll third week it t shows bearish h trend again n in the last we eek, it shows b bullish trend in this stock. In t the beginning o of the first we eek, one candle is broken the e upper band t thus we see im mmediately pric ce is reversed and candles are e moved downs side. six candle es are broken l lower band thu us ely trend is reve ersed and thos se are moved t to upside. immediate Bullish tren nd in this stock k except of the mid of the mo onth. We see c candles are wit thin the upper band. b Till mid of this t month, tre end is bearish t then trend is b bullish in this st tock in this month. Till mid of this t month, tre end is bullish th hen trend is be earish in this st tock in this month.
PARABOLIC SAR JAN FEB MAR APR MAY JUN
2011 Up-down-up-down trend of this stock this it gives buy-sell-buy-sell signals in this month. Till mid of this month, it indicates sell signal and then buy signal. Till third week of this month, it gives sell signal then it is showing buy signal. In the first, second and fourth week it shows buy signal of this stock but in the third week, it shows sell signal in this stock. Almost till mid of this month, it gives sell signal then it gives buy signal in this stock. Till mid of this month and ending of the last month, it gives buy signal of this stock and for remaining period of the weeks it gives sell signal.
VOLUME JAN FEB MAR APR MAY JUN
2011 Volume is less. Increased in the third week. Volume is less. It is decreased till mid of this month then it is increased. Volume is less till third week but in the last week and beginning of the first week, it is showing bullish trend in this stock. More volatile stock in this month. It crossed 2.0 M level. In the mid of this month, it gives sell signal. After the second week, volume shows bullish trend of this stock but still volume is less in this stock. Beginning and the ending of this month, it gives bullish trend of this stock. In the mid of this month, volume shows sell signal in this stock.
RSI JAN FEB
2011 In the ending of the last week, RSI is moved to downside thus it shoes bearish trend in this stock. Bearish trend of this stock in this month because RSI is almost below the 50 level. In the mid of this month, it is near Support level and in the last week, it is reversing to upperside. RSI is below the 50 level till third week of this month thus it shows bearish trend of this stock. In the last week it is reversed and crossed 50 levels upperside. Overbought position in the first week of this month thus it shows strong positive buying signal in this stock then in the mid of this month it touched the 50 level and reversed from there upperside. In the last week RSI crossed 50 level downside. Till second week of this month, it is showing bearish trend in this stock because RSI below the 50 level then it is reversed from there. In the third and last week of this month it is above 50 level. Till mid of this month it is showing bullish trend of this stock then it reversed to downside and touched the support level in the third week of this month and again reversed to upperside.
2011July 2011 to Dec 2011
BB JULY Y AUG G
2011 Band is con ntract in the en nding of the las st week. Bearis sh trend of this s stock becaus se candles are e below the MA A. From startin ng to mid of th he last week, ba and is invisible e. In the beginning of the fir rst week, band d is contract th hen it is expand ding too much ws more volati ility in this stoc ck and more vo olume in those e period in this s thus it show stock. Alm most bearish tre end of the stoc ck in this month because candles are within n the lowerb band. Band is exp panded till third week then it t is contracting g. Too much vo olatility in this stock till th hird week. It sh hows price is co onstant becaus se almost cand dles are on MA A. Till beginning of the second week, band d is contracted d then it is expa anded then again w it is contracted at a poiint thus it show ws more volatility in this stoc ck in in the last week this month. Till mid of thi is month it sho ows bullish trend of this stock then it shows end of this stoc ck. bearish tre Till third week, band is ex xpanded. In the e last week, ba and is contract t. Till mid of this d ending of last t week, it show ws bullish trend d and remainin ng period of this month and month it sh hows bearish trend in this sto ock. In the beginning of the fir rst week and in n the last week k, band is cont tracted. In the t first week to t till third wee ek of this mont th, band is exp panded too mu uch ending of the thus it show ws more volati ility and more volume in this s stock. Till seco ond week, it shows bullish trend in thi is stock.
PARABOLIC SAR JULY AUG SEP OCT NOV
2011 Sell signal is in this stock in this month. From first week to till beginning of the last week, PS shows sell signal in this stock then in it shows buy signal. Almost buy signal in this month except of the some days of second week. Till mid of this month, PS is showing buy signal of this stock and then it shows sell signal in this stock. Sell-buy-sell signal in this month. First and last week are showing sell signal in this stock. In Second and third week , PS shows the bullish trend of this stock. Bullish trend of this stock in this month.
VOLUME JULY AUG SEP OCT
2011 Volatile volume and bearish trend of sock in this month. It is near 500 K. Volume is too much increased and it touched 500K level of this stock. Almost Bearish trend of this stock in this month. Volume is decreasing in this month as compare to previous month. Almost bullish trend of this stock in this month. Volume is too much increased and reached near 100 k thus it shows more volatility in this stock. Till mid of this month, bullish trend in this stock then it shows bearish trend in this stock. Volume is decreased in this month as compare to previous month. More volatility in this stock. Volume is decreased in this month thus it shows bearish trend of this stock in this month.
RSI JULY AUG SEP OCT
2011 It touched to the support level thus it is showing bearish trend of this stock. Oversold position in this month of this stock and again in the last week, it is reversing to upperside. Price is constant because RSI on 50 level or near the 50 level in this month. In the second week, it touched the resistance level thus it shows the bullish trend of this stock here. In the first and third week, it touched 50 level thus here price is constant and again RSI is reversed to upperside. Till mid of this month, RSI is above 50 level thus it is showing bullish trend in this stock then it moved to downside and crossed the 50 level thus we see in the third week stock trend is bearish then it reversed to upside, near the resistance level. Till mid of this month, it is bullish then immediately it fell down thus it moved downside and touched 50 level and reversed to upperside again thus it is showing bullish trend again here.
2012012 to June 201 12 Jan 20
FEB MAR R APR
MAY Y JUN
2012 Invisible till third week an nd beginning o of the last week k. In the endin ng of the last d is expanded. It shows more e volatility in th his stock. From m the second week, band week, it shows bearish tr rend in the stoc ck. In the Beginning of the fir rst week, price e is constant because candles are on MA. Bullish tren nd till ending of o the last week k. Candles are within the upp per band. Band d is expanded too t much in th his month. Bearish tre end in this mon nth. Band is con ntracted in firs st week then it t is little expanding as compare e to previous month. m Volume e is less. In the first week, band is contract then it is expanded d too much. It s shows more n these periods s. Volume is to oo much increa ased in the last t week. It show ws volatility in bullish tren nd of this stock k. Till third wee ek of this mont th, it shows be earish trend in this stock Band is exp panded too mu uch till third we eek thus it sho ows bullish tren nd of this stock k here then Band B is contrac ct. Price is con stant because candles are on n MA. Band is con ntract. In the th hird week, can ndles broke the e upper band thus price reversed and moved dow wnside and aga ain it reversed and moved to the upperside e.
PARABOLIC SAR JAN
FEB MAR APR MAY JUN
2012 Bearish trend in this month. Dots are below the candles in the first week of this month thus it shows bullish trend in this stock. Candles are on MA thus price is constant in the first week then PS shows bearish trend in this stock. Till third week, bullish trend. in the ending of last week, price is reversed thus PS shows bearish trend there. Till mid of this month, trend is bearish and then bullish trend in this stock. In the first week and in the last week, trend is bullish. Ending of the first week to third week, trend of this stock is bearish. Till mid of this month, trend is bullish and then trend is bearish in this stock. Till third week of this month, trend of this stock is bullish then trend of this stock is bearish.
VOLUME JAN FEB MAR APR MAY JUN
2012 Volume is increased and crossed 0.5 M level. In the last week. it is bullish trend. Volume is showing bullish trend in this stock but volume is less. Volume is less and it is showing bearish trend in this stock. Volume is less till mid of this month. In the last week, volume is too much increased and it crossed 1.5 M level. More volatile but it shows bearish trend in this stock except of the beginning of the first week. Volume is less. End of the last week, it is showing bullish trend in this stock.
RSI JAN FEB
MAR APR MAY JUN
2012 Oversold position in the second week in this stock. Bearish trend in this stock. Resistance level touched two times and one time crossed this level thus here we see overbought position is in this stock. Strong positive trend is in this stock thus it indicates stock will go up. Bearish trend in this month. In the mid of this month, it touched support level. The whole month, it was below 50 level. Till third week, it is below 50 levels and two times touched the support level thus it is showing bearish trend in this stock. Once it is touched resistance level in the first week. Bullish trend of this stock in this month because RSI is above the 50 level. In the first week, RSI crossed the level of 50 thus here it shows bearish trend in this stock. In the third week again RSI crossed 50 level downside and reversed to upperside in the last week of this month.
2012July 2012 to Dec 2012
BB JULY Y
AUG G SEP OCT
2012 Invisible till third week an nd beginning o of the last week k. In the endin ng of the last d is little expan nded thus it sh ows more vola atility in this stock. from first week, band week to mi id of the secon nd week, band shows bullish trend in this st tock then trend is reversed thus trend is be earish in these period. Band is exp panding from beginning b to en nd of this month. Bullish tren nd of this stock k in this month because cand dles are within the upper ban nd. Band is too o much expand ded in this mon nth. Trend is bu ullish till mid o of this month th hen trend of this stock is bear rish. Price of sto ock is constant in the second and third wee ek because can ndles are on MA A. In the first week, trend is s bullish and in the last week trend is bullish h because cand dles anded till seco ond week then it is contracted. are within the upper band. Band is expa tility till the mid of this mont h then we see less volatility a and less volum me in More volat this stock. Till mid of this t month, band is contract and then it is e expanding. Buy y signal till mid d of this month and ending of f the last week k. Remaining p period of this m month, trend of s bearish. this stock is Band is exp panding from beginning b to th he ending of th his month thus it shows increasing volume and de emand. more v volatility of this stock in this month. Bearish h is stock. trend in this month of thi
JULY AUG SEP
2012 Buy signal in the first week then sell signal in the last three weeks of this month. In the beginning of the first week, it shows sell signal then it is showing buy signal in this stock. In the beginning of the first week, third week and fourth week, Ps shows sell signal in this stock. In the second week, it is showing buy signal in this stock. In the first week, PS shows sell signal in this stock then it indicates buy signal in this stock. In the first week and beginning of second week and ending of the last week, PS is showing bullish trend in this stock. In the ending of the second week and beginning of the last week, PS is showing sell signal in this stock. In the beginning of the first week and fourth week, PS is showing buy signal in this stock. in the ending of the first week, second and third week PS is showing bearish trend in this stock.
VOLUME JULY AUG SEP OCT NOV DEC
2012 In the first week and beginning of the second week, volume is very less. Volume is too much increased in the last week and it crossed the 2.0 M level. Volume is very less but trend is bullish of this stock in this month. Volume is very less. Till second week, trend is bullish of this stock then it is reversed. In the third and fourth week, trend of this stock is bearish. Volume is too much less in this month thus it is showing bearish trend of this stock. Volume is too much less in this month as compare to previous month. Bullish trend of this stock except of the mid of this month. Bearish trend till second week of this stock in this month. End of the last week, volume is invisible thus it is showing bearish trend in this stock.
RSI JULY AUG SEP
OCT NOV DEC
2012 In the last week of this month, it is crossed the 50 level and moved upside. RSI is fastly moved to the resistance level and crossed it two times thus here we see overbought position. Bullish trend of this stock in this month. RSI is crossed two times resistance level thus we see overbought position in the first and the second week in this stock and in the third week it is moved to downside, below the 50 level and reached near support level. RSI is near 50.almost below the level of 50. RSI is above the level of 50 till second week. In the third week, it is near the support level and again it is reversed to upperside and 50 levels upside. In the second week, RSI is crossed two times support level thus here it indicates bearish trend in this stock. In the third week, it again touched the support level and then reversed to upperside and touched 50 level and again reversed from there.
2013Jan 201 13-Mar 2013
BB JAN FEB MAR
2013 In the last week, w band is vi isible and it is e expanded. Bullish trend in th his month beca ause candles are above MA. Band is cont tract in the beg ginning of the s second week. S Still bullish trend in this stock in this month because b candle es are above M MA. Six times, c candles broke u upper band. Band is too much m expande ed in this mont th thus it show ws more volatili ity in this stock k and increase ed volume in th his month. Can ndles are in the e upper band. Fourth times, candles are broken upper band thus it sh hows reverse t trend in this sto ock.
PARA ABOLIC SAR JAN FEB MAR
2013 Buy signal bec cause dots are e below the can ndles. Buy signal bec cause dots are e below the can ndles. Buy signal bec cause dots are e below the can ndles.
VOLUME JAN FEB MAR
2013 Volume is increased in the second week and it touched the 600 K level. It shows bullish trend of this stock in this month. Volume is increased in the first week and it touched 500 K level. Volume is increased and it is above 300 K level in the first week.
RSI JAN FEB MAR
2013 In the last two weeks, it is near resistance level. From ending of first week to end of this month, overbought position in this stock. Strong buy signal in this stock. In the first week, overbought position is in this stock and in the second week RSI on resistance level. Thus it indicates, it will move again upside or it will go downside thus we should trade to keep order of stop loss or we should square up over position at this level.
ONE YEAR RESE EARCH OF INFOSYS L LTD
2008 (JA AN TO JUN)
2008 (JUL TO DEC)
From Jan to till June 2008 - In the Jan, Feb, and Apr and March, first week of Apr and third and fourth week of June, stock is showing bearish trend in this stock. In the May, first and two weeks of June and Third and fourth week of Apr stock is bullish. Thus In the two last week of June, trend of stock is reversed.
From July to till Dec 2008- In the July, Trend of this stock is bearish. In the Aug except of second week and first week of Sep, trend of this stock is bullish. In the month of July, Sep, Nov, Dec, trend of this stock is bearish.
TA for next Months– stock price will reverse. Bullish trend will be in this stock. Price will be between 1250 or 1300.
2009 (J JAN TO JUN)
2 2009 (JUL TO O DEC)
From Jan to till June 2009 - Bullish trend of this stock except of Feb last two weeks and in the first week of March.
From July to till Dec 2009-Mid of the Aug and Oct and in the first week of the Nov, Trend is bearish of this stock.
TA for next Months– stock price will reverse. Bearish trend will be in this stock. Price will be near 2400 or 2350.
2010 (JAN TO O JUN)
2010 ( (JUL TO DEC)
From Jan to till June 2010 – Except of last two weeks of Jan and First week of Feb and last Week of March and First week of Apr and May and first two weeks of Jun, It is bearish. Mostly up and down trend from Jan to June.
From July to till Dec 2010- Mostly bullish trend in this stock except of second third and forth week of Aug and last week of Oct and mid of Nov. TA for next Months– stock price will reverse. Bearish trend will be in this stock. Price will be near 3200.
2011 1 (Jan to Jun)
2011 (July to o Dec)
From Jan to till June 2011 – Bearish trend in this stock till third week of Mar and after the second week of Apr to till first week of Jun and in the third week of Jun. Except Apr first and second weeks and second week of Jun, Bearish trend of this stock in these months.
From July to till Dec 2011 –Except of last two weeks of Sep and whole Oct and beginning two weeks of Nov, Trend of this stock is bearish. In the last week of Dec, RSI was above the 50 level. Mostly from Second week of Sep to Dec (except of Oct), RSI was near 50, on 50 levels or below the 50 level.
TA for next Months– stock price will reverse. Bullish trend will be in this stock. Price will be near 2850 or 2900.
2012 (JAN TO JUN)
2012(JULY TO O DEC)
From Jan to till June 2012 – In these six months except Third week of Feb and mid of the June , stock is showing bearish trend. In the last week of Jun, trend of this stock is reversing thus we see RSI is moved upside, above 50 level.
From July to till Dec 2012 – Last week of July to second week of Aug, first week of Sep and from second week of Oct to third week of Nov and Dec, (except of beginning days of first week of Dec) trend of this stock is bearish.
TA for next Months– stock price will reverse. Bullish trend will be in this stock. Price will be near 2450 or 2500.
From Jan to till March M 2013 3 –Bullish tr rend in this stock till first week of f Mar then trend t of this stock is ch hanged bec cause we se ee here RSI o on 50 levels s and candles are mov ved to dow wnside below w the MA from the s second wee ek of March h. TA fo or next Mon nths – Bulli ish trend is s showing o of this stock k for the fu uture. Becau use one candle broke th he lower ba nd. Price will be near 2 2950 or 3000 0.
ONE YEAR RESE EARCH OF TCS
2008 (JA AN TO JUN)
2008 (JUL TO O DEC)
From Jan to till June 2008 – Down – Up trend in this stock. In Jan, second Third and Fourth week of Feb, Mar, Apr (except of third week), second and third week of May, Jun trend of this stock is showing Bearish.
From July to till Dec 2008 –Almost, price is constant till Aug. then it moved upperside in the first week of Sep. From the second week of Sep, stock is volatile, bearish trend in this stock from this month of Sep to till end of this months (except of last week of Nov).
TA for next Months– stock price will reverse. Bullish trend will be in this stock. Price will be near 600 or 650.
2009 (J JAN TO JUN)
2009 (JULY TO DEC)
From Jan to till June 2009 – Third week of Jan, last two weeks of Feb, first week of Mar, Third week of May and third and fourth week of June, trend of this stock is bearish. From Second week of Mar (except some days of last week of Mar and third week of Apr) to third week of May, stock shows in these month/period bullish trends.
From July to till Dec 2009 – strong buy signal in this stock in these months except of first week of July, third week of Aug, ending of the first week and in the beginning of second week of Oct and first week of Nov.
TA for next Months– stock price will reverse. Bearish trend will be in this stock. Price will be near 650.
2010 (JAN TO JUN)
2010 (JULY TO DEC)
From Jan to till June 2010 –from the second week of Feb to till Third week of March, mid of the Apr and first and third week of Jun, stock price was up. Last week of Jan to first week of Feb, First, third and fourth week of Apr, whole May and last week of June, trend of this stock is Bearish.
From July to till Dec 2010 – Strong buy signal in this stock in these month except of last week of Aug and first week of Sep and Third week of Nov.
TA for next Months– Bullish trend in this stock for future thus price will be near 1200 or 1250.
2011 (JAN TO JUN)
2011 (JULY TO O DEC)
From Jan to till June 2011 – Trend is Bearish of this stock in these months. Till mid of the Jan and two-three days of last week of Jan, Feb to till Third week of Mar, two-three days of last week of Apr to till mid of the May, ending of third week of May and beginning of the fourth week of May, in the third week of June- stock’s trend is bearish in these period.
From July to till Dec 2011 –July to Aug, second and third week of Sep, third week and beginning the fourth week of Nov, in these period stock trend is bearish. Mid of Sep, Oct, till mid of Nov and Dec(except mid of Dec), bullish trend is in this stock. Mostly up trend in this stock in these months.
TA for next Months– Bearish trend will be in this stock. Price will be near 1100 or 1050.
2012( (Jan to June)
2012 (July to o Dec)
From Jan to till June 2012 – In the last two weeks of Jan, Mar to till third week of Apr and Third week of June, trend of this stock is bearish. Except of these periods strong buy signal in this stock.
From July to till Dec 2012 – In the last two weeks of Jan, second and Third week of Sep, first-second-Third week of Oct, Third and fourth week of Nov except of some day in the last week of Nov, Trend of this stock is Bearish.
TA for next Months– price of stock will move upside. Price will be near 1350 or 1450.
From Jan to till March M 2013 – Strong bu uy signal in t this stock in n this month h.
TA for next Mon nths – price of stock will move ups side. Price w will be near 1600 or 165 50.
FIVE YEAR RESEARCH OF SECURITIES
Infosys CLOSING PRICES OF INFOSYS LTD (monthly)
JAN FEB MAR APR MAY JUN JULY AUG SEP OCT NOV DEC
1503.90 1546.85 1430.15 1753.75 1957.55 1734.75 1583.30 1748.50 1397.55 1381.65 1240.60 1117.85
1305.50 1231.30 1324.10 1507.30 1602.00 1776.90 2063.90 2132.30 2308.40 2205.40 2383.95 2605.25
2476.70 2601.60 2615.10 2736.15 2657.65 2788.55 2788.85 2707.10 3041.00 2969.60 3049.45 3445.00
3116.30 3003.05 3236.75 2905.95 2791.85 2907.40 2766.80 2342.80 2533.80 2875.20 2607.55 2765.05
2743.35 2875.40 2864.95 2462.60 2439.85 2502.55 2227.40 2373.25 2534.00 2363.50 2436.60 2318.50
2788.75 2906.00 2945.75
If we see the Closing Prices of Infosys in the month of March from 2008 to 2013. We found as following changes in price of Infosys• Price is decreased in 2009 as compare to previous year (2008) and a changed in price of 2009 is= 1324.10 – 1430.15 = - 106.05 • Price is increased in 2010 as compare to previous year (2009) and a changed in price of 2010 is=2615.10 – 1324.10 = + 1291 • Price is increased in 2011 as compare to previous year (2010) and a changed in price of 2011 is=3236.75 – 2615.10 = + 621.65 • Price is decreased in 2012 as compare to previous year (2011) and a changed in price of 2012 is=2864.95 – 3236.75 = - 371.80 • Price is increased in 2013 as compare to previous year (2012) and a changed in price of 2013 is=2945.75 – 2864.95 = + 80.80
Price of Infosys in the month of March, 2013 is 2945.75 and this price is less than price of Infosys in the month of March 2011. We are getting a chance to buy this stock in a cheap/ in a low price. This stock‘s price is increasing thus if we invest in this stock we will make good return. This stock is good for long term or mid-term investment. TA for next Months – Bullish trend is showing of this stock for the future. Price will be near 2950 or 3000.
CLOSING PRICES OF TCS (monthly) MON JAN FEB MAR APR MAY JUN JULY AUG SEP OCT NOV DEC 2008 875.25 874.30 810.90 919.55 1029.25 858.80 832.55 812.45 662.75 537.45 558.05 478.10 2009 511.95 480.60 540.00 623.20 699.75 389.70 526.40 527.00 619.35 626.20 687.20 749.75 2010 735.45 761.00 780.80 766.00 742.00 751.15 841.10 843.85 922.55 1051.80 1076.70 1165.05 2011 1157.15 2012 1130.50 2013 1342.75
1112.95 1221.05 1514.75 1182.50 1167.85 1567.55 1163.60 1244.90 1158.80 1245.80 1180.35 1277.55 1134.45 1240.65 1040.60 1347.30 1037.50 1294.00 1114.20 1313.40 1113.10 1312.85 1161.25 1258.55
If we see the Closing Prices of TCS in the month of March from 2008 to 2013. We found as following changes in price of TCS• Price is decreased in 2009 as compare to previous year (2008) and a changed in price of 2009 is= 540 – 810.90 = - 270.90 • Price is increased in 2010 as compare to previous year (2009) and a changed in price of 2010 is=780.80 – 540 = 240.80 • Price is increased in 2011 as compare to previous year (2010) and a changed in price of 2011 is=1182.50 – 780.80 = 401.70 • Price is decreased in 2012 as compare to previous year (2011) and a changed in price of 2012 is=1167.85 – 1182.50 = -14.65 • Price is increased in 2013 as compare to previous year (2012) and a changed in price of 2013 is=1567.55 – 1167.85 = 399.73 We see too much volatility in this Stock. In 2009 and 2012, price of this stock is decreased. A difference in changed price of the year 2010 and 2011 is
160.90. A Price difference of years 2011 - 2012 is -14.65 only then again in the month price of this stock is moved up and that is 1567.55. In 2011 the difference in the price of two years (2010 and 2011) is +401.70 then in 2012 this difference is changed and it is become negative that is 14.65 and again in the 2013 differences is changed, which is +399.73. above three years differences of this stock is showing too much volatility in this stock thus this stock is risky for Trading as per my view.
TA for next Months – price of stock will move upside. Price will be near 1600 or 1650.
COMPARISON BETWEEN INFOSYS AND TCS
TCS is more volatile and risky stock as compare to Infosys. If, we invest in TCS then no guarantee of good return. You can loss your money also. Infosys is very good stock as compare to TCS for the investment. If, you invest in this stock for long term or mid term then you will get good return.
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