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EXECUTIVE SUMMARY

Technical analysis is a method for forecasting the direction of financial instruments through the study of past market data such as prices, chart indicators and trends. The objective behind this research to analyse the scripts which are AXIS BANK , BHEL, INFOSYS, L&T, RIL and S&P CNX NIFTY (Market itself) . As per technical analysis, we have taken indicators such as – MACD, ROC, RSI and EMA based on which we have analyse the above scripts and come to a decision. As per research, the combination of above all indicators shows that except reliance majority of the indicators are giving the buy signal. Only reliance does not give any signal so investors should stay away from RIL. All other shares as well as NIFTY index are to be purchased as per technical analysis. Technical analysis is based on the assumption that people will continue to make the same mistakes they have made in the past. The advantages of timing the market over the buy and hold approach were particularly marked between 1992 and 2003 when Nifty persistently gave negative returns. It is not that this happens only when an investor is caught in a bubble, there are numerous examples to contrary, when investors have lost money even though they have manage to enter at absolute lows, their only fault is that they did not sell out, when prices went up, but decided to hold on forever.

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BACKGROUND
The ULTIMATE GOAL of any speculative investment is to earn profits. The purpose of this report is to review the evidence that strategy of technical analysis (simple moving averages) helps to determine the profitability for speculation in trading in Indian stock market. To achieve this purpose, the report comprehensively reviews survey, theoretical and calculative studies regarding technical trading strategies. We begin by over viewing survey studies that have directly investigated market participants’ experience and views on technical analysis. The survey literature indicates that technical analysis has been widely used by market participants in futures markets and foreign exchange markets, and that about 30% to 40% of practitioners appear to believe that technical analysis is an important factor in determining price movement at shorter time horizons that is less than two years. Early studies indicated that technical trading strategies were profitable in foreign exchange markets and futures markets, but not in stock markets before the 1980s. Modern studies indicated that technical trading strategies consistently generated economic profits in a variety of speculative markets at least until the early 1990s. Among a total of 92 modern studies, 58 studies found positive results regarding technical trading strategies, while 24 studies obtained negative results. Ten studies indicated mixed results. Future research must address deficiencies in order to provide conclusive evidence on the profitability of technical trading strategies.

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LITRATURE REVIEW
Technical analysis is a forecasting method of price movements using past prices, volume, and open interest. Pring (2002), a leading technical analyst, provides a more specific definition: “The technical approach to investment is essentially a reflection of the idea that prices move in trends that are determined by the changing attitudes of investors toward a variety of economic, monetary, political, and psychological forces. The art of technical analysis, for it is an art, is to identify a trend reversal at a relatively early stage and ride on that trend until the weight of the evidence shows or proves that the trend has reversed.” Technical analysis includes a variety of forecasting techniques such as chart analysis, pattern recognition analysis, seasonality and cycle analysis, and computerized technical trading systems. However, academic research on technical analysis is generally limited to techniques that can be expressed in mathematical forms, namely technical trading systems, although some recent studies attempt to test visual chart patterns using pattern recognition algorithms. A technical trading system consists of a set of trading rules that result from parameterizations, and each trading rule generates trading signals (long, short, or out of market) according to their parameter values. Technical analysis has two main ways that indicators are used to form buy and sell signals in technical analysis is through crossovers and divergence. Crossovers are the most popular and are reflected when either the price moves through the moving average, or when two different moving averages cross over each other. The second way indicators are used is through divergence, which happens when the direction of the price trend and the direction of the indicator trend are moving in the opposite direction. This signals to indicator users that the direction of the price trend is weakening. Among the most popular technical indicators, moving averages are used to gauge the direction of the current trend. Every type of moving average (commonly written in this tutorial as MA) is a mathematical result that is calculated by averaging a number of past data points. Once determined, the resulting average is then plotted onto a chart in order to allow traders to look at smoothed data rather than focusing on the day-to-day price fluctuations that are inherent in all financial markets. The technical analysis approach to capital market evaluation has received little attention and acceptance as compared to fundamental analysis. But in recent

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years the popularity of technical school of thought is increasing among academicians and practitioners. A brief review of literature is given below. Alexander (1961) examined the profitability of using a mechanical filter rule for stock trading. His study indicated substantial profits from filters. Cootner and James Jr(1962) tested the Moving Average technique. They believed that this technique averages out random fluctuations and thus changes in the directions of basic trends can be isolated. Fama and Blume (1966) conducted a study of the Dow Jones Industrial stocks using 24 different filters, ranging in size from 0.5 % to 50 % for the time period from 1957 to September 1962. The conclusion of their test was that filter rules were not profitable when the effect of interim dividends and brokerage commissions are considered. Levy (1967) tested the Relative Strength technique. This technique selected those stocks that were performing the best, relative to their average prices of the previous 26 weeks. Sharma and Kennedy (1977) compared stock price behaviour across three exchanges: Mumbai, London and New York during 1963-73. The runs test and spectral analysis that were employed both confirmed the random movement of stock indices for all three stock exchanges. Sharma (1983) tested the random character of stock prices for the developing economy, supporting the independence assumption of the random walk model. This study also suggested that markets are weak form efficient and trading rules cannot lead to extra-normal returns. Nefti and Policano (1984) used the moving average and the slope method to analyse the future market. The results suggest that by characterising the actual behaviour of the market participants, improved price predictions can be obtained in future market. Dawson (1985) tested whether investors could have outperformed the market by using actual share recommendations based solely upon technical analysis outperformed the market but after adjusting for trading commissions, market trends and risk. Brock, Lakonishok and Le Baron (1992) tested the two simplest and most popular trading rules- Moving Average and Trading Range Break- by utilising the Dow Jones from 1897 to 1986. The results provide strong support for technical strategies. Consistently, buy (sell) signals generate returns which are higher (lower) than normal returns. Blume, Easley and O’Hara(1994) investigated the informational role of volume and its applicability for technical analysis. In their model, technical analysis is valuable because current market statistics may be sufficient to reveal some information , but not all. The uncertainty in the economy is not resolved in one period and sequences of market statistics may be sufficient to reveal some information that is not impounded in a single market price. Batten and Ellis (1996) analysed the technical trading performance of the Australian All Ordinary Index. The trading system employed were able to generate a return greater than buy and hold strategy without considering transaction costs.

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Seghal & Garhyan (2002) evaluate whether share recommadations based on technical analysis provide abnormal returns in the Indian capital market. The study involves 21645 recommenadations for 21 companies using 13 technical indicators. The mean return was found statistically significant for the total period. Mitra (2002) examined the applicability of moving average based technique and filter rule techniquefor investments on trading in Indain stock market. The study found that profit is high in moving average crossover with periods 2 and 10 days.

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CHAPTER – 1 INTRODUCTION

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The methods used to analyze and predict the performance of a company’s stock fall into two broad categories:-

(1)Fundamental analysis (2)Technical analysis

Fundamental analysis is a type of stock selection discipline. If you conduct thorough research of a company's accounting statements before deciding to purchase stock in the company for investment purposes, you are said to be following a fundamental analysis approach to investing. Another very common approach is technical analysis, which is almost the opposite type of approach. A fundamental analysis approach attempts to determine whether the company is financially sound and will continue to earn money. A technical analysis approach to investing is almost entirely concerned with how the price of the stock has performed over time and attempts to predict what it will do in the future based on this. Sometimes, the two approaches are combined, with a fundamental analysis approach used to select the stocks and a technical analysis approach used to time the investment in the stocks of interest. When performing a fundamental analysis of the stock of interest, one tries to determine whether the stock is worth investing in. In this approach, one looks at how well the company is performing financially. What are the company's earnings? Have they been growing? How does the ratio of the price of the stock versus the earnings per share, the P/E ratio, compare with other similar companies?

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This approach attempts to answer some basic or fundamental questions about the financial health of the company and the industry in which the company operates. How large is the company? How long has it been in business? What is the management of the company like? What is the outlook for the industry that the company is in? Fundamental analysis is usually viewed as a more conservative approach to stock selection than technical analysis. It is certainly a more exact science. The price earnings ratio is easy to calculate; it is simply the price of each share of the stock divided by the earnings per share. The book value of the company can easily be determined from the company's financial statements, and the earnings are easily calculated from the financial records. In contrast, the mathematics behind most Technical Analysis is much more complex and frequently requires much more of a judgment call on the part of the investor. In a technical analysis approach, the investor attempts to predict crowd behavior, while a fundamental analysis simply attempts to determine whether the company has been earning money and at what rate it will likely continue to earn money. The price of the stock in the short term is not that important in a fundamental analysis, since the theory is that if the company is earning money and continues to earn money, then the stock price will eventually go up. A technical analysis approach is much more concerned with short term price movements. Investing in stocks is much more likely to be successful if a systematic approach is used. A fundamental analysis approach is the easiest to understand and learn, and as such, it is perhaps the best place to start for a beginning investor. However, both approaches have their strengths, and knowledge of both will benefit any investor and result in improved investment returns.

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CHAPTER – 2 RESEARCH METHODOLOGY

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Study Objectives
 To learn about various type of techniques used for forecasting of future stock price  To analyze the type of trend on basis of various charts  To find out appropriate time to buy and sell securities  To forecast the future target price of various stock on long term basis, Intermediate basis and short term basis.

Scope of Study
This project can help investors in maximizing the returns and preserving capital while investing their money in stock market

Methods of Data Collection
Primary Data • • • Metastock Professional Software Personal interaction with Mr. Deepak Ankleshwaria (C.M.D. of Interface Financial Services) I-charts. in – the official website for accessing the various charts of stocks

Secondary Data • • • From Books From Internet From Research Reports

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Statistical Tools
We have used following tools in this project • Concept of Technical Analysis viz. Support and Resistance

Limitations
One of the limitation was that the field is so large that an in depth study of the all the avenue is not possible. • • Lack of time. We were not able to find all chart patterns. For e.g. patterns like head and shoulders, Elliot wave theory, Fibonacci retracement, Key Reversals, etc…..

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CHAPTER – 3 ABOUT STOCK BROKING INDUSTRY

Stock Market of India
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Introduction
Stock markets refer to a market place where investors can buy and sell stocks. The price at which each buying and selling transaction takes is determined by the market forces (i.e. demand and supply for a particular stock). Let us take an example for a better understanding of how market forces determine stock prices. ABC Co. Ltd. enjoys high investor confidence and there is an anticipation of an upward movement in its stock price. More and more people would want to buy this stock (i.e. high demand) and very few people will want to sell this stock at current market price (i.e. less supply). Therefore, buyers will have to bid a higher price for this stock to match the ask price from the seller which will increase the stock price of ABC Co. Ltd. On the contrary, if there are more sellers than buyers (i.e. high supply and low demand) for the stock of ABC Co. Ltd. in the market, its price will fall down. In earlier times, buyers and sellers used to assemble at stock exchanges to make a transaction but now with the dawn of IT, most of the operations are done electronically and the stock markets have become almost paperless. Now investors dont have to gather at the Exchanges, and can trade freely from their home or office over the phone or through Internet.

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History of the Indian Stock Market - The Origin

One of the oldest stock markets in Asia, the Indian Stock Markets have a 200 years old history.

18th Century 1830's

1840's 1850's

1860's 1860-61

1862-63 1865

East India Company was the dominant institution and by end of the century, busuness in its loan securities gained full momentum Business on corporate stocks and shares in Bank and Cotton presses started in Bombay. Trading list by the end of 1839 got broader Recognition from banks and merchants to about half a dozen brokers Rapid development of commercial enterprise saw brokerage business attracting more people into the business The number of brokers increased to 60 The American Civil War broke out which caused a stoppage of cotton supply from United States of America; marking the beginning of the "Share Mania" in India The number of brokers increased to about 200 to 250 A disastrous slump began at the end of the American Civil War (as an example, Bank of Bombay Share which had touched Rs. 2850 could only be sold at Rs. 87)

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Pre-Independance Scenario - Establishment of Different Stock Exchanges

1874

1875 1880's 1894 1880 - 90's 1908 1920 1923 1934 1936 1937

1940 1944 1947

With the rapidly developing share trading business, brokers used to gather at a street (now well known as "Dalal Street") for the purpose of transacting business. "The Native Share and Stock Brokers' Association" (also known as "The Bombay Stock Exchange") was established in Bombay Development of cotton mills industry and set up of many others Establishment of "The Ahmedabad Share and Stock Brokers' Association" Sharp increase in share prices of jute industries in 1870's was followed by a boom in tea stocks and coal "The Calcutta Stock Exchange Association" was formed Madras witnessed boom and business at "The Madras Stock Exchange" was transacted with 100 brokers. When recession followed, number of brokers came down to 3 and the Exchange was closed down Establishment of the Lahore Stock Exchange Merger of the Lahoe Stock Exchange with the Punjab Stock Exchange Re-organisation and set up of the Madras Stock Exchange Limited (Pvt.) Limited led by improvement in stock market activities in South India with establishment of new textile mills and plantation companies Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange Limited was established Establishment of "The Hyderabad Stock Exchange Limited" "Delhi Stock and Share Brokers' Association Limited" and "The Delhi Stocks and Shares Exchange Limited" were established and later on merged into "The Delhi Stock Exchange Association Limited"

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Post Independence Scenario
The depression witnessed after the Independence led to closure of a lot of exchanges in the country. Lahore Estock Exchange was closed down after the partition of India, and later on merged with the Delhi Stock Exchange. Bnagalore Stock Exchange Limited was registered in 1957 and got recognition only by 1963. Most of the other Exchanges were in a miserable state till 1957 when they applied for recognition under Securities Contracts (Regulations) Act, 1956. The Exchanges that were recognized under the Act were: 1. 2. 3. 4. 5. 6. 7. 8. Bombay Calcutta Madras Ahmedabad Delhi Hyderabad Bangalore Indore

Many more stock exchanges were established during 1980's, namely:
1. Cochin Stock Exchange (1980) 2. Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982) 3. Pune Stock Exchange Limited (1982) 4. Ludhiana Stock Exchange Association Limited (1983) 5. Gauhati Stock Exchange Limited (1984) 6. Kanara Stock Exchange Limited (at Mangalore, 1985) 7. Magadh Stock Exchange Association (at Patna, 1986) 8. Jaipur Stock Exchange Limited (1989) 9. Bhubaneswar Stock Exchange Association Limited (1989) 10. Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989) 11. Vadodara Stock Exchange Limited (at Baroda, 1990) 12. Coimbatore Stock Exchange 13. Meerut Stock Exchange

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At present, there are twenty one recognized stock exchanges in India which does not include the Over The Counter Exchange of India Limited (OTCEI) and the National Stock Exchange of India Limited (NSEIL). Government policies during 1980's also played a vital role in the development of the Indian Stock Markets. There was a sharp increase in number of Exchanges, listed companies as well as their capital, which is visible from the following table:

S. No. 1 2 3 4 5 6 7

As on 31st December No. of Stock Exchanges No. of Listed Cos.

1946 1961 1971 1975 1980 1985 7 7 8 8 9 14

1991 20 6229 8967 32041 11027 9 514 1770

1995 22 8593 11784 59583 47812 1 693 5564

1125 1203 1599 1552 2265 4344

No. of Stock Issues of 1506 2111 2838 3230 3697 6174 Listed Cos. Capital of Listed Cos. (Cr. 270 Rs.) Market value of Capital of 971 Listed Cos. (Cr. Rs.) Capital per Listed Cos. 24 (4/2)(Lakh Rs.) Market Value of Capital per 86 Listed Cos. (Lakh Rs.) (5/2) Appreciated value of 358 Capital per Listed Cos. (Lak Rs.) 753 1812 2614 3973 9723

1292 2675 3273 6750 25302 63 107 113 167 168 211 175 298 224 582

8

170

148

126

170

260

344

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Trading Pattern of the Indian Stock Market

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Indian Stock Exchanges allow trading of securities of only those public limited companies that are listed on the Exchange(s). They are divided into two categories:

Types of Transactions
The flowchart below describes the types of transactions that can be carried out on the Indian stock exchanges: Indian stock exchange allows a member broker to perform following activities:

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1. 2. 3. 4.

Act as an agent, Buy and sell securities for his clients and charge commission for the same, Act as a trader or dealer as a principal, Buy and sell securities on his own account and risk.

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Over The Counter Exchange of India (OTCEI)
Traditionally, trading in Stock Exchanges in India followed a conventional style where people used to gather at the Exchange and bids and offers were made by open outcry. This age-old trading mechanism in the Indian stock markets used to create much functional inefficiency. Lack of liquidity and transparency, long settlement periods and benami transactions are a few examples that adversely affected investors. In order to overcome these inefficiencies, OTCEI was incorporated in 1990 under the Companies Act 1956. OTCEI is the first screen based nationwide stock exchange in India created by Unit Trust of India, Industrial Credit and Investment Corporation of India, Industrial Development Bank of India, SBI Capital Markets, Industrial Finance Corporation of India, General Insurance Corporation and its subsidiaries and CanBank Financial Services.

Advantages of OTCEI
1. Greater liquidity and lesser risk of intermediary charges due to widely spread trading mechanism across India

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2. The screen-based scripless trading ensures transparency and accuracy of prices 3. Faster settlement and transfer process as compared to other exchanges 4. Shorter allotment procedure (in case of a new issue) than other exchanges

Traditional Broking
Traditionally In stock Market, the investors invest their money in shares under the guidance of the Brokers of any stock broking company. This is convenient to those investors who are not familiar with the computer and the use of internet. But it requires more dealers to the share broking companies to give guidance related to investment. There was a chance of inaccuracy of price because it is a time consuming process. The cost of the company also increases due to more paperwork. The investor point of view, there was a problem of privacy. The information of investor may leak by the broker. So, to remove these limitations of traditional broking, there was an emergence of new concept e-Broking.

E- Broking - A small beginning:

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You have some money to dabble with. Trading shares on BSE/NSE has always been your dream. When will you ever find the time? And besides, the hassle of finding a broker is not easy. Realizing there is untapped market of investors who want to be able to execute their own trades when it suits them, brokers have taken their trading rooms to the Internet. Known as online brokers, they allow you to buy and sell shares via Internet. There are 2 types of online trading service: discount brokers and full service online broker. Discount online brokers allow you to trade via Internet at reduced rates. Some provide quality research, other don’t. Full service online brokerage is linked to existing brokerages. These brokers allow their clients to place online orders with the option of talking/ chatting to brokers if advice is needed. Brokerage rates here are higher. 5Paisa.com, ICICIDirect.com, IndiaBulls.com, Sharekhan.com, Geojit securities.com, HDFCsec.com, Tatatdw.com, Kotakstreet.com are some of the online broking sites in India. With Net trading in securities and rapid consolidation between multiple stock exchanges, the international securities marketplace is fast becoming a "global village" through the creation of a universal virtual equity market. Compared to the Western countries, online trading is still in its infancy in India. With trading turnover at around Rs. 10 crores per day from online trading compared to a combined gross turnover of around Rs. 9000-10,000 crores handled by the BSE and NSE together, online trading has a long way to go.

INTERNET TRADING IN INDIA

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In the past, investors had no option but to contact their broker to get real time access to market data. The Net brings data to the investor on line and net broking enables him to trade on a click. Now information has become easily accessible to both retail as well as big investors. The development of broking in India can be categorized in 3 phases: 1. Stock brokers offering on their sites features such as live portfolio manager, live quotes, market research and news to attract more investors. 2. Brokers offering on line broking and relationship management by providing and offering analysis and information to investors during broking and non-broking hours based on their profile and needs, that is, customized services. 3. Brokers (now e-brokers) will offer value management or services such as initial public offerings on line, asset allocation, portfolio management, financial planning, tax planning, insurance services and enable the investors to take better and well-considered decisions. In the US, 82 per cent of the deals are done on line. The European on line broking market is expected to be of $8 billions and is likely to raise five fold by 2002. In India, presently Internet trading can take place through the order routing system, which will route client orders to exchanges trading systems for execution of trades on stock exchanges (NSE and BSE). This will also require interface with banks to facilitate instant cash debit or credit and the depository system for debit or credit of securities.

Objectives of Internet trading

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• • • • •

Increase transparency in the markets. Enhance market quality through improved liquidity, by increasing quote continuity and market depth. Reduce settlement risks due to open trades, by elimination of mismatches. Provide management information system (MIS). Introduce flexibility in system, to handle growing volumes easily and to support nationwide expansion of market activity.

Besides, through Internet trading three fundamental objectives of securities regulation can be easily achieved, these are: Investor protection, creation of a fair and efficient market and, reduction of the systematic risks.

Factors to keep in mind while selecting online brokers:

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Brokerage cost:
It is important to weigh up the subscription and trading costs charged by an online broker against benefits offered by the site. All online brokers display their charges on their sites. Some make sure you find the charges easily, while with others you will have to search a bit.

Safety:
Please make sure site has 128-bit encryption to ensure safety of transaction online. ICICIDirect.com, 5paisa.com are few sites with 128-bit encryption. You normally get a secured Login id and password. It is always advisable to frequently change trading password. Ideally online trading site should be fully integrated. The greater the backward integration, the better it is for the customer. Ideally broking account, demat account and bank account should be linked electronically.

Rate refresh:
Rate refresh has to be real-time with no time lag. The speed and reliability comes with huge investment in technology. It is always advisable to check rates of online broking sites with BSE/ NSE terminal rates.

Speed of execution:
System has to be fast and reliable that does just one job- executes your trades. The last thing you need is a site that is heavily congested with the users who are downloading heavy jpeg graphs or pulling the latest story why market is moving. The site should be one click wonder where squaring off all your positions or canceling all your pending orders takes one click and a confirmation of action.

Trading limit:

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For trading, all sites provide 4 times buy and sell limit against margin money put in by customer. For delivery of shares, buying limit is equal to margin money put in by customer. Couple of sites also provides margin funding for buying of shares.

Free trial period:
Site should allow users free trial period to familiarize yourself with system before you decide to become trading member of the site.

Intraday chart/ historical chart:
The site should provide intraday chart tick by tick time and price data / historical chart for technical analysis by investors of particular scrip. Lot of people trade based on charting packages.

Challenges in Internet Trading:
For Internet trading to succeed it is imperative to have both, a robust business model as well as a comprehensive technology strategy. Some of the challenges are discussed: Transaction fulfillment--In the Net-based economy, it is both prudent and essential for a broker/intermediary to offer total solution to the clients at a single point. Total solutions would essentially mean offering interfaces with banks, depositories, information feeds, etc. for efficiency in trade completion and reducing duplication of client information. The service providers will have to go beyond the stage of mere order execution and emerge as "informediaries" rather than "intermediaries". This will not only ensure lower trading costs in terms of offering cross services but will also help in maximizing RoIs. A true Internet trading system should deliver cost effective transaction fulfillment at a single point.

National Stock Exchange

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In order to lift the Indian stock market trading system on par with the international standards. On the basis of the recommendations of high powered Pherwani Committee, the National Stock Exchange was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and Investment Corporation of India, Industrial Finance Corporation of India, all Insurance Corporations, selected commercial banks and others. NSE provides exposure to investors in two types of markets, namely: 1. Wholesale debt market 2. Capital market

Wholesale Debt Market - Similar to money market operations, debt market operations involve institutional investors and corporate bodies entering into transactions of high value in financial instruments like treasury bills, government securities, commercial papers etc.

Trading at NSE
1. 2. 3. 4. 5. Fully automated screen-based trading mechanism Strictly follows the principle of an order-driven market Trading members are linked through a communication network This network allows them to execute trade from their offices The prices at which the buyer and seller are willing to transact will appear on the screen 6. When the prices match the transaction will be completed 7. A confirmation slip will be printed at the office of the trading member

Advantages of trading at NSE
1. 2. 3. 4. Integrated network for trading in stock market of India Fully automated screen based system that provides higher degree of transparency Investors can transact from any part of the country at uniform prices Greater functional efficiency supported by totally computerized network

MAJOR PLAYERS OF INDUSTRY

India Infoline Ltd.
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• ICICI Web trade Ltd. • HDFC Securities Ltd. • Angel Broking Ltd.

Indiabulls Financial Services Ltd.

• Motilal Oswal Securities Ltd. • Anand Rathi Securities Ltd. • Karvy Stock Broking Ltd. • Axis • BHEL • Infosys • L&T • RIL • S&P CNX NIFTY

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CHAPTER – 4 THEORETICAL ASPECTS OF TOPIC

TECHNICAL ANALYSIS

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Technical Analysis is the science of recording, usually in graphic form, the actual history of trading (price changes, volume of transactions, etc.) in a certain stock or in “the Averages” and then deducing from that pictured history the probable future trend. Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value; instead they look at stock charts for patterns and indicators that will determine a stock's future performance. Technical analysis has become increasingly popular over the past several years, as more and more people believe that the historical performance of a stock is a strong indication of future performance. The use of past performance should come as no surprise. People using fundamental analysis have always looked at the past performance of companies by comparing fiscal data from previous quarters and years to determine future growth. The difference lies in the technical analyst's belief that securities move according to very predictable trends and patterns. These trends continue until something happens to change the trend, and until this change occurs, price levels are predictable. There are many instances of investors successfully trading a security using only their knowledge of the security's chart, without even understanding what the company does. However, although technical analysis is a terrific tool, most agree it is much more effective when used in combination with fundamental analysis.

THE BASIC ASSUMPTIONS

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Technicians say that a market's price reflects all relevant information, so their analysis looks More at "internals" than at "externals" such as news events. Price action also tends to repeat Itself because investors collectively tend toward patterned behavior – hence technicians' focus on identifiable trends and conditions. The field of technical analysis is based on three assumptions: 1. The market discounts everything. Based on the premise that all relevant information is already reflected by prices, pure technical analysts believe it is redundant to do fundamental analysis they say news and news events do not significantly influence price. 2. Price moves in trends. Technical analysts believe that prices trend. Technicians say that markets trend up, down, or sideways (flat). This basic definition of price trends is the one put forward by Dow Theory. 3. History tends to repeat itself. Technical analysts believe that investors collectively repeat the behavior of the investors that preceded them. To a technician, the emotions in the market may be irrational, but they exist. Because investor behavior repeats itself so often, technicians believe that recognizable (and predictable) price patterns will develop on a chart Technical analysis is not limited to charting, but it always considers price trends. For example, many technicians monitor surveys of investor sentiment. These surveys gauge the attitude of market participants, specifically whether they are bearish or bullish.

Technicians use these surveys to help determine whether a trend will continue or if a reversal could develop; they are most likely to anticipate a change when the surveys report extreme

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investor sentiment. Surveys that show overwhelming bullishness, for example, are evidence that an uptrend may reverse – the premise being that if most investors are bullish they have already bought the market (anticipating higher prices). And because most investors are bullish and invested, one assumes that few buyers remain. This leaves more potential sellers than buyers, despite the bullish sentiment. This suggests that prices will trend down, and is an example of contrarian trading.

THE BASIC CHART CONSTRUCTION

As shown in chapter-1, technicians do not believe that the price of securities and that the overall stock market moves in a random manner. Rather, they contend that a direct relationship exists between price movements in the past and those that will occur in the future. Their objective is to determine what this relationship is so that they will be able to predict accurately whether the stock market or a particularly security’s price will go up or down. The primary tool that a technician uses is a “picture” or chart of a stock’s price movement.

TYPES OF CHARTS:
Technician use four types of charts

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1. 2. 3.

Bar chart Line chart Japanese candlestick chart

• Bar Chart
A bar chart is the most popular way to display security prices. A bar chart is made up of vertical bars, with each bar representing the price movement for a time period (i.e., hour, day, week, month, etc.). Hash marks on the left and right sides of the bar represent the opening and closing prices respectively. The top of the bar represents the high price and the bottom of the bottom represents the low price
285 280 275 270 265 260 255 250 245 240 235 230 225 220 215 210 205 200 195 190 185 180 175 170 165 160 155 150 145 140 135 130 125 120 115 110 105 100 95 12000 11000 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 x100 April May June July August September October November December 2006 February March April INDO GULF CORP (247.850, 274.000, 241.000, 260.650, +20.3500) 285 280 275 270 265 260 255 250 245 240 235 230 225 220 215 210 205 200 195 190 185 180 175 170 165 160 155 150 145 140 135 130 125 120 115 110 105 100 95 12000 11000 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 x100

The advantage of using a bar chart over a straight-line graph is that it shows the high, low, open and close for each particular day. This is the type of chart that will be used to display various indicators throughout this tutorial.

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• Line Chart
A line chart is the simplest type of chart. One price (typically the close) is plotted for each time period (i.e., day, week, month, etc.). A single, unbroken line connects each of these price points.

Japanese Candlestick Chart

The highest and the lowest price of the day are joined by a vertical bar. The opening and the closing price of the day, which would fall in between the highest and the lowest prices would be represented by the rectangle so that the price bar chart looks like a candle stick.

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There are mainly three types of candle sticks:• • DOJI OR NEUTRAL: - it is the one where the opening price and the closing price of the day are the same. WHITE: - A white candle stick is used to represent a situation where the closing price of the day is higher than the opening price of the day. It indicates the bullish trend. • BLACK: - Is used when the closing price of the day is lower than the opening price of day. It indicates the bearish trend.

JAPANESE CANDLESTICKS

Candlestick charts have been around for hundreds of years. They are often referred to as "Japanese candles" because the Japanese would use them to analyze the price of rice contracts. Similar to a bar chart, candlestick charts also display the open, close, daily high and daily low. The difference is the use of color to show if the stock went up or down over the day.

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Two different types of color is used. Green color is used when the ending price of the stock is higher than the opening price while the red color is used when the opening price is higher than the closing price.

THE BASIC CONCEPTS:
There are two basic concepts of technical analysis through which we can predict the stock pattern or trend. Viz. 1. 2. Support Resistance

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Support and resistance represent key junctures where the forces of supply and demand meet. In the financial markets, prices are driven by excessive supply (down) and demand (up). Supply is synonymous with bearish, bears and selling. Demand is synonymous with bullish, bulls and buying. These terms are used interchangeably throughout this and other articles. As demand increases, prices advance and as supply increases, prices decline. When supply and demand are equal, prices move sideways as bulls and bears slug it out for control.

• WHAT IS SUPPORT?
Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support.

Support does not always hold and a break below support signals that the bears have won out over the bulls. A decline below support indicates a new willingness to sell and/or a lack of incentive to buy. Support breaks and new lows signal that sellers have reduced their expectations and are willing sell at even lower prices. In addition, buyers could not be coerced into buying until prices declined below support or below the previous low. Once support is broken, another support level will have to be established at a lower level. •

WHERE IS SUPPORT ESTABLISHED?

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Support levels are usually below the current price, but it is not uncommon for a security to trade at or near support. Technical analysis is not an exact science and it is sometimes difficult to set exact support levels. In addition, price movements can be volatile and dip below support briefly. Sometimes it does not seem logical to consider a support level broken if the price closes 1/8 below the established support level. For this reason, some traders and investors establish support zones. •

WHAT IS RESISTANCE?

Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. The logic dictates that as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and prevent the price from rising above resistance.

Resistance does not always hold and a break above resistance signals that the bulls have won out over the bears. A break above resistance shows a new willingness to buy and/or a lack of incentive to sell. Resistance breaks and new highs indicate buyers have increased their expectations and are willing to buy at even higher prices. In addition, sellers could not be coerced into selling until prices rose above resistance or above the previous high. Once resistance is broken, another resistance level will have to be established at a higher level. •

WHERE IS RESISTANCE ESTABLISHED?

Resistance levels are usually above the current price, but it is not uncommon for a security to trade at or near resistance. In addition, price movements can be volatile and rise above

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resistance briefly. Sometimes it does not seem logical to consider a resistance level broken if the price closes 1/8 above the established resistance level. For this reason, some traders and investors establish resistance zones.

CONCLUSION
Charts are one of the most fundamental aspects of technical analysis. Regardless of the type of the chart used, the length of the period examined will vary depending on whether one is oriented to short-term, intermediate-term or long term investments. Short term roughly refers to the next three months, intermediate term is about three to six months from the present time, and long time is considered to be approximately six months to one year from the current period. Technicians often use hourly and daily charts to determine the short-term trend of security price movements. They use weekly charts for gaining an intermediate term perspective. And monthly and yearly charts help technicians examine the long term. Apart from the type of chart used the main aspect of the trend forecasting is to identify the key levels of support and resistance establishment, where is established and where it breakout and where it breakdown etc.

MATHEMATICAL INDICATORS (THEORITICAL PARTS)
Share price do not rise or fall in straight line. The movements are erratic. The mathematical tool of moving averages is used to smoothen out the apparent erratic movements of share prices.

3.8.1 Moving Averages
Moving averages are mathematical indicators of the underlying trend of the price movement. There are Two types of Moving Averages (MA) – the simple moving average and the exponential moving average. The closing prices of shares are generally used for the calculation of moving averages.

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Simple Moving Average
An average is the sum of prices of a share for a specific number of days divided by the number of days. Calculation of Five-day Simple MA
Days Five day MA (1) (4)
1 _ _ _ _ 2 3 4

Closing prices (2)
33 35 37.5 36 39 40 40.5 38.5 41 42

Total of prices of 5 days (3)
_ _ _ _ 180.5 187.5 193.0 194.0 198.0 202.0

5 36.1 6 37.5 7 38.6 8 38.8 9 39.6 10 40.4

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Exponential moving average • Exponential moving average (EMA) is calculated by using the Following formula:
• EMA = (Current closing price – Previous EMA)( Factor) +Previous EMA

• Where, o Factor = 2/n+1 n= number of days for which the avg. is calculated
Calculation of five-day EMA Days EMA (1) (3) 1 33 2 33.66 3 34.93 4 35.28 5 36.51 • • Here, Factor = 2/n+1 = 2/5+1 = 2/6 = 0.33 The EMA for the first day is taken as the closing price of that day itself. EMA for second day = (Closing price – Previous EMA) Factor + Previous EMA  • (35 – 33) (0.33) + 33 = 33.66 EMA for third day = (37.5 -33.66) (0.33) + 33.66 = 34.93 If we are calculating the five day exponential moving average, the correct five day EMA will be available from sixth day onwards. The period of the average indicates the type of trend being identified. E.g. five day or ten day avg. would indicate the short-term trend; 50day avg. would indicate the medium-term trend and a 200 day avg. would represent the long-term trend. Closing prices (2) 33 35 37.5 36 39

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Sometimes, two moving avg. one short-term and the other long-term are used in combination. In this case, trend reversal is indicated by the intersection of the two moving avg.

Rate of change Indicator (ROC)
• It is very popular ‘oscillator’ (identify overbought and over sold condition and also the possibility of trend reversals.) This measures the rate of change of the current price as compared to the price a certain number of day or weeks back. To calculate a 7 day ROC, • • ROC = Current price/Price ‘n’ period ago -1 Where, o n= number of days for which ROC is to be found

Calculation of 7 Day ROC Days ratio 1 _ 2 _ 3 _ 4 _ 5 _ 6 _ 7 _ 8 1.07 9 1.08 10 1.10 _ 75 0.07 78 0.08 80 0.10 70 72 73 _ 77 _ _ 76 _ _ 74 _ _ 70 _ _ 73 _ _ 72 _ Closing prices ROC = Ratio -1 70 Closing price 7 days ago _ Price

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11 1.13 12 1.05

79 0.13 78 0.05

70 74

The RC values may be positive, negative or zero.

ROC chart Relative Strength Index (RSI)

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• • • •

This is a power full indicator that signals buying and selling opportunities ahead of the market which is calculated by using a following formula. RSI = 100-(100/1+RS) Where, o RS = Avg. gain per day/Average loss per day The most commonly used time period for calculation for RSI is 14 days. The gain or loss is decided by the difference between current day and previous day’s closing price.

Calculation of 14 Day RSI
Day Closing Price Change over previous day Change over previous day

Gain 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 130 132 130 135 137 134 136 140 140 142 139 141 145 143 145 2 5 2 2 4 2 2 4 2

Loss 2 3 3 2 -

14 Day Average

25 25 = 1.786 14

10 10 = 0.714 14

RS = 1.786/0.714 =2.50 RSI = 100 – [100/(1+2.50)] = 100- (100/3.50)

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= 100 – 28.58 =71.42
These values are plotted n and graph as shown below.

RSI chart

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Moving Average Convergence and Divergence (MACD)
• MACD is an oscillator that measures the convergence and divergence between two exponential moving avg. The MACD value for different days are derived by deducting the long term EMA from each day from the corresponding short term EMA for the day. The difference between short- term EMA and the long-term EMA represent the MACD. • The buy and sell signals are generated by the cross over of the average line and the MACD line. When the line are below the zero line, if the MACD line crosses the average line from below to above it indicated a buying opportunity. • When the lines are above the zero line crosses the MACD line above to below the average line signals a selling opportunity

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CHAPTER-5 CHART ANALYSIS

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CHARTS ANALYSIS (PRACTICAL PARTS)
Traditionally, charting is the main approach for technical analysis. However interpreting a chart or an indicator is a subjective issue. Even you have the experience; your accuracy is still very limited by looking at a chart, not to mention that the meaningful information is often swamped by the random component of the prices.

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AXIS BANK

AXIS – EMA (EXPONENTIAL MOVING AVERAGE)

Decision Rule:- When the price of the share intersects and moves above or below the MA line, it may indicate the sign of trend reversal. Application:- In AXIS scripts, EMA cuts closing from above at 761 level where it gives a SELL signal and when EMA cuts closing from below at 1065 level where it gives BUY signal.

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AXIS – ROC (RATE OF CHANGE INDICATOR)

Decision Rule:- In ROC chart the overbought zone is above the zero line and the over sold zone is below the zero line. Ideally one should buy a share that is oversold and sell a share that is overbought. Application:- The chart shows that when ROC cuts from above to 100 at 650 level where it gives SELL signal While ROC cuts from below to 100 at 886 level where it shows a BUY signal.

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AXIS – RSI (RELATIVE STRENGHT INDEX)

Decision Rule: - RSI values above 70 are considered to denote overbought condition and values below 30 are considered to denote oversold condition.

Application: - The chart shows INDIFFERENT situation where a line has NEITHER fall below at 30 level where it shows BUY signal NOR a line has rise above at 70 level where it shows SELL signal based on the RSI.

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AXIS – MACD(MOVING AVERAGE CONVERGENCE AND DIVERGENCE)

D ecision Rule: - When the MACD line crosses, the MACD signal line (red) from the below it gives a buy signal and vice versa. MACD signal line is also known as EMA (Exponential Moving Average) line. Application:- It indicates a BUY signal at 851 level and indicates a SELL signal at 1106 level.

CONCLUSION
TOOLS MA – EMA (200 Days) MACD ROC RSI SIGNALS (BUY, SELL, NEUTRAL) BUY SELL BUY INDIFFERE NT

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BHARAT HEAVY ELECTRICAL LIMITED (BHEL)
BHEL – EMA (EXPONENTIAL MOVING AVERAGE)

Decision Rule:- When the price of the share intersects and moves above or below the MA line, it may indicate the sign of trend reversal. Application:- In AXIS scripts, EMA cuts closing from above at 761 level where it gives a SELL signal and when EMA cuts closing from below at 1065 level where it gives BUY signal.

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BHEL – ROC (RATE OF CHANGE INDICATOR)

Decision Rule:- In ROC chart the overbought zone is above the zero line and the over sold zone is below the zero line. Ideally one should buy a share that is oversold and sell a share that is overbought. Application:- The chart shows that when ROC cuts from above to 100 at 600 level where it gives SELL signal While ROC cuts from below to 100 at 850 level where it shows a BUY signal.

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BHEL – RSI (RELATIVE STRENGHT INDEX)

Decision Rule: - RSI values above 70 are considered to denote overbought condition and values below 30 are considered to denote oversold condition. Application: - The chart shows INDIFFERENT situation where a line has NEITHER fall below at 30 level where it shows BUY signal NOR a line has rise above at 70 level where it shows SELL signal based on the RSI.

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BHEL – (MOVING AVERAGE CONVERGENCE AND DIVERGENCE)

D ecision Rule: - When the MACD line crosses, the MACD signal line (red) from the below it gives a buy signal and vice versa. MACD signal line is also known as EMA (Exponential Moving Average) line. Application:- It indicates a BUY signal at 851 level and indicates a SELL signal at 1106 level.

CONCLUSION
TOOLS MA – EMA (200 Days) MACD ROC RSI SIGNALS (BUY, SELL, NEUTRAL) BUY SELL BUY INDIFFERE NT

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INFOSYS
INFOSYS – EMA (EXPONENTIAL MOVING AVERAGE)

Decision Rule:- When the price of the share intersects and moves above or below the MA line, it may indicate the sign of trend reversal. Application:- In AXIS scripts, EMA cuts closing from above at 533 level where it gives a SELL signal and when EMA cuts closing from below at 1065 level where it gives BUY signal.

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INFOSYS – ROC (RATE OF CHANGE INDICATOR)

Decision Rule:- In ROC chart the overbought zone is above the zero line and the oversold zone is below the zero line. Ideally one should buy a share that is oversold and sell a share that is overbought. Application:- The chart shows that when ROC cuts from above to 100 at 450 level where it gives SELL signal While ROC cuts from below to 100 at 886 level where it shows a BUY signal.

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INFOSYS – RSI (RELATIVE STRENGHT INDEX)

Decision Rule: - RSI values above 70 are considered to denote overbought condition and values below 30 are considered to denote oversold condition. Application: - The chart shows INDIFFERENT situation where a line has NEITHER fall below at 30 level where it shows BUY signal NOR a line has rise above at 70 level where it shows SELL signal based on the RSI.

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INFOSYS – (MOVING AVERAGE CONVERGENCE AND DIVERGENCE)

D ecision Rule: - When the MACD line crosses, the MACD signal line (red) from the below it gives a buy signal and vice versa. MACD signal line is also known as EMA (Exponential Moving Average) line. Application:- It indicates a BUY signal at 681 level and indicates a SELL signal at 1050 level.

CONCLUSION
TOOLS MA – EMA (200 Days) MACD ROC RSI SIGNALS (BUY, SELL, NEUTRAL) BUY SELL BUY INDIFFERE NT

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LARSEN & TOUBRO (L&T)
L&T – EMA (EXPONENTIAL MOVING AVERAGE)

Decision Rule:- When the price of the share intersects and moves above or below the MA line, it may indicate the sign of trend reversal. Application:- In AXIS scripts, EMA cuts closing from above at 800 level where it gives a SELL signal and when EMA cuts closing from below at 1065 level where it gives BUY signal.

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L&T – ROC (RATE OF CHANGE INDICATOR)

Decision Rule:- In ROC chart the overbought zone is above the zero line and the oversold zone is below the zero line. Ideally one should buy a share that is oversold and sell a share that is overbought. Application:- The chart shows that when ROC cuts from above to 100 at 680 level where it gives SELL signal While ROC cuts from below to 100 at 886 level where it shows a BUY signal.

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L&T – RSI (RELATIVE STRENGHT INDEX)

Decision Rule: - RSI values above 70 are considered to denote overbought condition and values below 30 are considered to denote oversold condition. Application: - The chart shows INDIFFERENT situation where a line has NEITHER fall below at 30 level where it shows BUY signal NOR a line has rise above at 70 level where it shows SELL signal based on the RSI.

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L&T – (MOVING AVERAGE CONVERGENCE AND DIVERGENCE)

D ecision Rule: - When the MACD line crosses, the MACD signal line (red) from the below it gives a buy signal and vice versa. MACD signal line is also known as EMA (Exponential Moving Average) line. Application:- It indicates a BUY signal at 851 level and indicates a SELL signal at 1100 level.

CONCLUSION
TOOLS MA – EMA (200 Days) MACD ROC RSI SIGNALS (BUY, SELL, NEUTRAL) BUY SELL BUY INDIFFERE NT

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RELIANCE INDUSTRIES LTD
RIL – EMA (EXPONENTIAL MOVING AVERAGE)

Decision Rule:- When the price of the share intersects and moves above or below the MA line, it may indicate the sign of trend reversal. Application:- In AXIS scripts, EMA cuts closing from above at 800 level where it gives a SELL signal and when EMA cuts closing from below at 1065 level where it gives BUY signal.

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RIL – ROC (RATE OF CHANGE INDICATOR)

Decision Rule:- In ROC chart the overbought zone is above the zero line and the oversold zone is below the zero line. Ideally one should buy a share that is oversold and sell a share that is overbought. Application:- The chart shows that when ROC cuts from above to 100 at 700 level where it gives SELL signal While ROC cuts from below to 100 at 886 level where it shows a BUY signal.

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RIL – RSI (RELATIVE STRENGHT INDEX)

Decision Rule: - RSI values above 70 are considered to denote overbought condition and values below 30 are considered to denote oversold condition. Application: - The chart shows INDIFFERENT situation where a line has NEITHER fall below at 30 level where it shows BUY signal NOR a line has rise above at 70 level where it shows SELL signal based on the RSI.

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RIL – (MOVING AVERAGE CONVERGENCE AND DIVERGENCE)

D ecision Rule: - When the MACD line crosses, the MACD signal line (red) from the below it gives a buy signal and vice versa. MACD signal line is also known as EMA (Exponential Moving Average) line. Application:- It indicates a BUY signal at 900 level and indicates a SELL signal at 1100 level.

CONCLUSION
TOOLS MA – EMA (200 Days) MACD ROC RSI SIGNALS (BUY, SELL, NEUTRAL) NEUTRAL NEUTRAL NEUTRAL INDIFFERE NT

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S&P CNX NIFTY
NIFTY – EMA (EXPONENTIAL MOVING AVERAGE)

Decision Rule:- When the price of the share intersects and moves above or below the MA line, it may indicate the sign of trend reversal. Application:- In AXIS scripts, EMA cuts closing from above at 800 level where it gives a SELL signal and when EMA cuts closing from below at 1065 level where it gives BUY signal.

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NIFTY – ROC (RATE OF CHANGE INDICATOR)

Decision Rule:- In ROC chart the overbought zone is above the zero line and the oversold zone is below the zero line. Ideally one should buy a share that is oversold and sell a share that is overbought. Application:- The chart shows that when ROC cuts from above to 100 at 680 level where it gives SELL signal While ROC cuts from below to 100 at 886 level where it shows a BUY signal.

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NIFTY – RSI (RELATIVE STRENGHT INDEX)

Decision Rule: - RSI values above 70 are considered to denote overbought condition and values below 30 are considered to denote oversold condition. Application: - The chart shows INDIFFERENT situation where a line has NEITHER fall below at 30 level where it shows BUY signal NOR a line has rise above at 70 level where it shows SELL signal based on the RSI.

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NIFTY – (MOVING AVERAGE CONVERGENCE AND DIVERGENCE)

D ecision Rule: - When the MACD line crosses, the MACD signal line (red) from the below it gives a buy signal and vice versa. MACD signal line is also known as EMA (Exponential Moving Average) line. Application:- It indicates a BUY signal at 841 level and indicates a SELL signal at 1093 level.

CONCLUSION
TOOLS MA – EMA (200 Days) MACD ROC RSI SIGNALS (BUY, SELL, NEUTRAL) BUY SELL BUY INDIFFERE NT

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FINDINGS

SCRIPTS MACD
AXIS BHEL INFOSYS L&T RIL NIFTY SELL SELL SELL SELL NEUTRAL SELL

ROC
BUY BUY BUY BUY NEUTRAL BUY

RSI
INDIFFERENT INDIFFERENT INDIFFERENT INDIFFERNT INDIFFERNT INDIFFERENT

EMA
BUY BUY BUY BUY NEUTRAL BUY

JUDGE MEN T
BUY BUY BUY BUY INDIFFER ENT BUY

So, the combination of above all indicators show that except reliance majority of the indicators are giving the buy signal . only reliance does not give nay signal so an investors should stay away from RIL. All other shares as well as NIFTY index are to be purchased as per technical analysis.

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Suggestions

Technical analysis offers a great way for investors to make short-term investment decisions. For many, this means confirming whether or not a particular moment in time is the right time to enter or exist a position, or if it may make more sense to wait a little longer before executing that trade. Although many investors dismiss technical analysis as inconclusive and arbitrary, there is a lot of empirical evidence to support that technical analysis will indeed work. Here are three arguments that support the validity of the technical side of analysis and why investors need to incorporate this type of analysis in their trading programs.

Based on Statistical Calculations
Since technical analysis is heavily based on statistical calculations, historic performance can indeed help predict future movements. The simplest example that can help illustrate the importance of statistics in security price forecasts is that a volatility is often something that sticks with a security. For example, it is unlikely that one security will be low-volatility one month and high volatility the next when the broader market has remained steady. Apple will almost always be more volatile than General Electric; therefore predicting that Apple shares will rise more than General Electric shares during the next market upswing is not an inconclusive and arbitrary argument.

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Based On Probabilities
Since technical analysis is heavily weighted in probabilities, it may not be a statistical definite, but it does provide a lot of forward guidance. This speaks to the fact that a stock price that has been down four days in a row will more likely be up on the following market day. And the more "down" days this security records, the higher that probability of an "up" day. While this is an elementary example, it illustrates the mechanics that drive technical analysis -- probabilities. And this is exactly what price trends tell us.

Speaks To Price, Not The Security
Unlike fundamental analysis that investigates a security for its future potential based on clues found in the financial statements, management discussion, as well as other economic and sector information, technical analysis speaks only about the security's price. This eliminates any degree of bias that one might about the security, allowing an investor to make a more objective decision about the security. For example, an investor who feels strong about ABC Company might decide on taking a long-term position in a given security. However, the price maybe seriously overbought or all indications might be that if the investor waits a week or month, the security price will allow some kind of savings on the position (easily determined based on the price trend as well as volatility of the security). By taking an interest in the security's technical analysis, an investor could save a small fortune which becomes particularly important when market timing is such a big factor in determining your investment success. These three arguments illustrate just how important technical analysis is when building a portfolio or deciding on your entry and exit points in a given security. Although technical analysis should never be used in isolation, it most certainly should be part of any investor's trading and analysis arsenal.

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CHAPTER 5 CONCLUSION

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Technical analysis is based on the assumption that people will continue to make the same mistakes they have made in the past. There is no reason why anyone cannot make substantial amount of money in financial markets, but there are many reasons why many people will not. People lack knowledge and dedication. The advantages of timing the market over the buy and hold approach were particularly marked between 1992 and 2003 when Sensex persistently gave negative returns. It is not that this happens only when an investor is caught in a bubble, there are numerous examples to contrary, when investors have lost money even though they have manage to enter at absolute lows, their only fault is that they did not sell out, when prices went up, but decided to hold on forever. John Maynard Keynes had famously said, “In the long run, we are all dead.” So timing is important. Most things done well are also done simply. Because the market operates on commonsense, the analyst should be very simple. Technical analysis deals in probabilities, never certainties. One should have confidence and discipline to make money in this market. Confidence comes from knowledge and experience of the market. Happy investing!!!

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Bibliography
• Data collected :
Website: Yahoo.com- closing prices of scripts . BOOKS : SECURITY ANALYSIS – MADHUMATI SECURITY ANALYSIS- ASHWINI GUJARAT

• Calculation :
Calculation has done through formulas as per book and at Microsoft Excel .

• Chart analysis :
Chart has made at Microsoft Excel at which we have made analysis on presumptions (basis) rate.

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