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Graphic Gains
Sowmya KamathDelhi Print Edition: January 2012

Daytradinginstocksisrisky,moresoifyouareuntrained.However,ifyouhavean
eyeforspottingmarkettrends,youcanmakeaneatpileinquickintraday
deals.Therewasatimenotlongagowhentradingwasasimplegameofbuyingand
sellingstocksbasedonone'sconviction.Now,technicalanalysisascienceof
predictingfuturepricesfromhistoricalpricedatahasgiveninvestorsnewtools.
"Technicalanalysisincreasestheprobabilityofyourcallbeingright,"saysAbhijit
Paul,assistantvicepresident,technicals,BRICSSecurities.But,wereiteratewhat
wementionedinourreport,"TheKickofQuickBucks,"intheOctober2011issue,
thoughdaytradinglookseasy,nobodycantaketherightcalleverytimeandthere
willbedayswhenonelosesmoney,attimesalotofit.

Howitworks
Technicalanalysisisdoneonthebasisofhistoricalpricemovementplottedona
twodimensionalchart.Onereasonithasbecomepopularisthatanybodycanlook
atthechartandseehowpriceshavemoved. LATEST MUSTREAD TECHNEWS

Forexample,inthechart,EasyReading,youcanseeopen,high,lowandclosing Demonetisation a bold


and gutsy move, says US
pricesoftheBombayStockExchangeSensexonJuly7,2011. Industry Body

Howtopickastock
Goodvolumeandvolatilityareamusttogainfromtrading.Whilevolumeshould Amid cash crunch, Rs 91
ideallybeatleast500,000shares,thestockshouldhaveahighbeta,orvolatility. lakh found in BJP
minister's vehicle
Thismeansiftheindexrises1%,thestockshouldrisebymorethan1%.Thosewho
don'tunderstandtheconceptshouldseetoitthatthedifferencebetweenintraday
highandintradaylowpricesofastockisatleastRs10. Demonetisation to drag
down FY18 GDP growth
at 5.8%: Report
Identifyingtherightstockandfixingastoplosslevelisamust,saysPaul.Onemust
sticktothestoploss.Generally,stoplossisfixedat1.52%,whichmeansthestock
issoldifitfalls1.52%belowthepurchaseprice.Bigtradersgenerallyfixstoploss
ataboutonethirdoftheexpectedprofit.Forexample,iftheyexpectastocktorise
10%inthreedays,theysetastoplossatapointthepricefallsby3%.

Onceyouzeroinonthestock,lookatitsvolumesandpricetrends.Generally,
highervolumeswithhigherpriceriseindicateanuptrend,butitshouldnotbe
consideredathumbrule."Volumeismisreadbyalotofpeople,"saysJohnBarrett,
aninstructoratOnlineTradingAcademy,whichteachesstocktrading.Bigvolumes
andlargemovessometimesthrowupbigtopsandbottoms,saysBarrett.This
meansifbothvolumesandpricesareincreasing,itmaybethelastlegoftherally.

StockTrends
Identifyingtrendsisimportant.Buthowdoyouspotatrend?It'sdifficult,asthe
marketnevermovesinastraightline.Astockwillneverfallcontinuouslyonagiven
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dayandriseonanother."Generally,higherhighsandhigherlowsindicatean MORE

uptrend,whereaslowerhighsandlowerlowsmeanadowntrend,"saysShrikant
Chouhan,seniorvicepresident,technicalresearch,KotakSecurities.

"Lookatthetrend.Lookatnewsrelatedtothestock,"saysChouhan.Forexample,
iftherupeeisfallingagainsttheUSdollar,it'scommonknowledgethattechnology
companieswillgain.

Analystsandmarketexpertstakethehelpofvariousparameterstoconfirmifa
stockisatradepick.Themostusedareavailableinanytechnicalanalysissoftware.
Theseinclude200daymovingaverage,relativestrengthindex,movingaverage
convergencedivergence,orMACD,Fibonacciretracementandcandlestickprice
chart.Thetermsmaysounddaunting,butsoftwareavailablenowadaysmakes
technicalanalysiseasy.

MovingAverages
Oneofthewidelyusedtoolsisthe200daymoving
average.Yousimplyhavetoplotthe200daymoving
averageonthepricechart.Whenthepriceofthestock
risesabovethemovingaverageline,it'sabuysignal,and
whenthepricefallsbelowthemovingaverageline,itisa
sellsignal.Onecanalsolookthe50daymovingaverage
orthe10daymovingaverage.Tradingisagameof
probability.So,youhavetoarriveatyourownmethods
todecidewhichparameterssuityouthebest.Inthe
graph,MovingAverages,youcanseetheSensex NEWSYOUCANUSE
movementcomparedtothe200daymovingaverageof 10 nancial tips for people in 30s for a
ClickheretoEnlarge theSensex.Thebrownlineisthemovingaverageline. stress-free future
InFebruary,thelinewentabovethepricebarsandthe Travel time for 14 premier trains
Sensexstartedfalling.Whenthe200daymovingaveragefellbelowthepricebars including Rajdhani, Shatabdi reduced
inApril,themarketsstartedgoingup.Inthegraphic,theSensexisbelowthe Top 10 fastest cars in the world
movingaverage,indicatingbearishness.Butthisisjustoneparameter.
11 nancial mistakes people in their 30s
RelativeStrengthIndex(RSI) make to regret later

RSIcomparesthemagnitudeofrecentgainstorecentlossestoseeifanassetis Maruti Suzuki Vitara Brezza to get petrol


oversoldoroverbought.RSIisplottedonascaleof0100.Generally,ifitisabove variant soon

70,thestockisconsideredoverboughtandsoonecanlooktosellit.Similarly,an Reliance Jio: SIM card, 4G plans, apps


RSIoflessthan30indicatesthestockisoversoldandcanbebought.Inthechart, and more

RelativeStrengthIndex,youcanseethatRSIwasnear20inOctober2011,
signalingthatL&T'sshareswereoversold.Itreversedfrom20andthestockmoved
Social News
up. Business Today

Movingaverageconvergence
divergence(MACD)
Thisisaveryimportanttoolusedby
technicalexperts.Youjusthavetoselectthe
MACDandplotitonachart.TheMACD
ClickheretoEnlarge comprisestwolines,fastandslow.Thefast
lineisthedifferencebetweenthe26day Business Today
@BT_India
exponentialmovingaverageandthe12dayexponentialmovingaverage.Theslow
line,alsocalledthesignalline,istheninedaymovingaverage.So,thebluelinein 'Positive protest' on #GST: States
4m
thechart,MACD,isthefastlineandthebrownlineistheslowline.With
technology,thesecalculationsareautomatedandagraphgetsplottedattheclick

onthemouse.

Whenthefastlinecrossesabovetheslowline,it'sabuysignal,andwhentheslow
linecrossesthefastline,it'sasellsignal.ThechartshowsthattheMACDisthebest
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waytopredictthemovementofastock. MORE

FibonacciRetracement

Fibonacciretracementisbasedonthe
assumptionthatthemarketsretracebya
fewpredictablepercentages,thebestknown
ofwhichare38.2%,50%and61.8%.So,
whenthemarketretraces38%,itwill
generateeitherasellorabuycall
ClickheretoEnlarge
dependingonthetrend.
INSIGHT
YouhavetoplotFibonacciretracementfromthepeakprice.Thesoftwarewillgive
theabovementionedretracementlevels.Whenthepricereachesthe38.2%level What gives Narendra Modi
the legal right to scrap Rs
andbounces,itmeansthepriceofthestockatwhichthechartplotsthe38.2% 500, Rs 1,000 notes
retracementisthesupportlevelandyoucanbuy.However,ifthepricefallsbelow Ranjeev C. Dubey
the38.2%level,youmaylookatthepriceat50%retracementlevelasyournext
support.Thechart,FibonacciRetracement,showshowthe38.2%retracementis Removal of Cyrus Mistry
won't be all that easy
workingwellfortheRanbaxystock.
Nevin John
SupportandResistance
Youmayhearorreadtechnicalexpertsrecommendingsupportandresistance Coping with cash challenges,
levels.Butplottingsupportandresistanceandfindingityourselfisasimplejob.As micro loan businesses in
limbo
youknow,pricesmoveinazigzagfashionandformlowsandhighs.Asupportis
E Kumar Sharma
plottedatthedailylowpriceandresistanceatthedailyhighprice.Forexample,in
thegivenchart,Chouhansaysheseessupportof4,700fortheNiftyandiftheindex MORE
fallsbelowthis,itmayfallfurtherto4,300.Hehasplottedresistanceat5,177levels.
TakealookathowhemanagedtogetsupportandresistancefortheNiftyfromthe
October7graph,SupportandResistance.

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