technical analysis- dipak pr

8/3/2019 Technical Analysis- Dipak Pr

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A PROJECT REPORT ON

TECHNICAL ANALYSIS OF INDIAN TELECOM

SECTOR

With Reference To

BHUBANESWAR STOCK EXCHANGE LIMITED, BHUBANESWAR

SUMMER INTERNSHIP PROJECT REPORT SUBMITTED TO BPUT FOR THE PARTIAL FULFILLMENT OF THE

REQUIREMENTS OF MASTER OF BUSINESS ADMINISTRATION DEGREE

Submitted by:

DIPAK RANJAN BASANTRAYREGD.NO. 1006206004

(SESSION 2010-12)

Under The Guidance of

External Guide: Internal Guide:

BIPIN BIHARI DUTTA (Asst. Manager)

BHUBANESWAR STOCK EXCHANGE

(BHSE)

PROF.DEBENDRA KUMAR OJHA

ABIT-JRD TATA INSTITUTE OF

MANAGEMENT

ABITJRD TATA INSTITUTE OF MANAGEMENT

SECTOR-1, CDA, CUTTACK

Recognised to AICTE, New Delhi Affiliated to BPUT, Odisha


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I hereby declare that the project report entitled TECHNICAL ANALYSIS OF INDIAN

TELECOM SECTOR is submitted by me for partial fulfilment of the requirements of the degree of

MBA, as a course curriculum under BPUT, is an authentic record of study carried out by me under

professional guidance and supervision.

Due acknowledges and references have been made where ever necessary. This project

report is a result of my original work and except some conceptual aspects, technical charts and

some images as prescribed, no portion of the said report has been copied or duplicated nor has

any project report similar to this one ever been submitted to any of the university or any other

organization of this sort.

Date:

Place:

(DIPAK RANJAN BASANTRAY)


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Certificate From Internal Guide

This is to certify that the project work entitled Technical Analysis of IndianTelecom Sector is an original piece of work done by Dipak Ranjan Basantray (Regd.No-

1006206004), student of ABIT-JRD TATA INSTITUTE OF MANAGEMENT, under myguidance and supervision for the partial fulfillment of the requirement for the degree in

M.B.A under BPUT.To the best of my knowledge and belief, the thesis embodies the work of the candidate

himself and has been duly completed. Simultaneously, the thesis fulfills the requirements of

the rules and regulations related to the Dissertation of the institute and I am assured that the

project is up to the standard both in respect to the contents and language for being referred to

the examiner.

Prof. Debendra Kumar Ojha(Sr.Faculty, MBA)

ABIT-JRD TATA INSTITUTE OF MANAGEMENT


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Certificate from the h.o.d.

This is to certify that the project work entitledTechnical Analysis of IndianTelecom Sector is an original piece of work done by Dipak Ranjan Basantray Regd.No-

1006206004), student of ABIT-JRD TATA INSTITUTE OF MANAGEMENT, under myguidance and supervision for the partial fulfillment of the requirement for the degree in

M.B.A under BPUT.To the best of my knowledge and belief, the thesis embodies the work of the candidate

himself and has been duly completed. Simultaneously, the thesis fulfills the requirements of

the rules and regulations related to the Dissertation of the institute and I am assured that the

project is up to the standard both in respect to the contents and language for being referred to

the examiner.

Prof. Joysingh Mishra(H.O.D, MBA)

ABIT-JRD TATA INSTITUTE OF MANAGEMENT


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The money which is earned is partly spent and the rest saved for meeting future expenses.

Instead of keeping the savings idle, people like to use savings in order to get return on it in the

future. This is called Investment. One needs to invest to:

earn return on his idle resources

generate a specified sum of money for a specific goal in life

make a provision for an uncertain future

As per return is concerned Stock Market is treated as the best place to earn higher returns as

compared to other means of investment. A huge number of companies are listed there to facilitate

effective mobilization and utilization of savings.

In todays world companies become known or considered big when they are listed on

reputed Stock Exchanges namely NSE (NIFTY) & BSE (SENSEX) for India, DOWJONES for USA,

HANGSENG for Hong Kong, NIKKEI for Japan, RTS for Russia, etc. Once the company is listedeverything a company does / doesnt is reacted upon by the public and the prices of the share of

the respective company fluctuate. Now the company would always want a true picture of the

company to be represented by share price, they wouldnt mind if its overvalued but it hurts when

the stocks get undervalued. But this uncertainty of the price gives people a chance to make money

both in long term & short term. Long term investment is mainly based upon studying fundamentals

of the company and its growth potential. But the real piece of magic lies in making money by

trading shares either Intraday or holding for a short term. If one wants to make money in this way,he / she need to know the technical side of the stock i.e. charts, trends etc.

Its not hard to guess how fascinating it is and so it has been decided to unlock the mystery

as far as possible in these two months of time. This field is very difficult to be taught in classroom


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perhaps beyond scope. One has to see to believe, understand and implement it and that was my

main objective after all to find out the answers of following questions:

1. Where will NIFTY/SENSEX go from here?

2. Which stock will rise today and which ones will fall?

3. Should I hold it or square off my positions?

4. Why is hedging required / how is it done?

To find the answer of the above questions and many more it has been chosen to do

summer internship in the field of Technical Analysis. Hope the project report will serve thenecessity of the needy students, investors and research scholars to find out strategic implications

of technical analysis at the time of taking investment decisions and will guide them to unlock the

market-sutrato sustain in the financial market.


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I would like to express my gratitude to all those who gave me the possibility to complete

this thesis. I would like to thank my college authorities and my H.O.D. Prof. Joysingh Mishra first

for providing me the opportunity to work with one of the most prestigious organization.

I express my hearty thanks to Mr. Bipin Datta(Asst. Manager), Bhubaneswar Stock

Exchange Ltd., Bhubaneswar, my company guide who gave and confirmed this permission and

encouraged me to go ahead with my thesis.

I am deeply indebted to my faculty guide Mr. Debendra Kumar Ojha(Sr. Faculty, Finance),

whose help, stimulating suggestions and encouragements helped me in all the times of research

and for writing the thesis.

I also want to thank other faculty member and my parents who always stood beside me and

encouraged me to complete my project work.

My friends who have supported me in my research work, I want to thank them for all their

help, support, interest and valuable hints.

Especially, I would like to give my hearty thanks to my parents, their love and blessings

enabled me to complete this work.

Date:

Place:

(DIPAK RANJAN BASANTRAY)


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Executive Summery 8

Objective of the Study 12

Scope of the Study 12

Limitations of the Study 13

Introduction to the Project 14

Company Overview 55

Research Theory 65

Methodology 67

Data Analysis & Interpretation 69

Findings 89

Suggestions &Conclusion 90

Bibliography & References


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INTRODUCTON

WHATS THIS EQUITY ANALYSIS?

Professional investor will make more money & less loss than, who let their heart rule. Their

head eliminate all emotions for decision making. Be ruthless & calculating, you are out to make

money. Decision should be based on actual movement of share price measured both in money &

percentage term & nothing else. Greed must be avoided patience may be a virtue, but impatience

can frequently be profitable.

In Equity Analysis anticipated growth, calculations are based on considered FACTS & not on

HOPE. Equity analysis is basically a combination of two independent analyses, namelyfundamental

analysis & Technical analysis. The subject of Equity analysis, i.e. the attempt to determine future

share price movement & its reliability by references to historical data is a vast one, covering many

aspect from the calculating various FINANCIAL RATIOS, plotting of CHARTS to extremely

sophisticated indicators.

A general investor can apply the principles by using the simplest of tools: pocket calculator,

pencil, ruler, chart paper & your cautious mind, watchful attention. It should be pointed out that,

this equity analysis does not discuss how to buy & sell shares, but does discuss a method which

enables the investor to arrive at buying & selling decision. The financial analysts always need

yardsticks to evaluate the efficiency & performances of any business unit at the time of

investment. Fundamental analysis is useful in long term investment decision. In Fundamental

analysis a company s goodwill, its performances, liquidity, leverage, turnover, profitability &

financial health was checked & analysis with the help of ratio analysis for the purpose of long term

successful investment.

Technical analysis refers to the study of market generated data like prices & volume to

determine the future direction of prices movements.


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Technical analysis mainly seeks to predict the short term price travels. The focus of

technical analysis is mainly on the internal market data, i.e. prices & volume data. It appeals mainly

to short term traders. It is the oldest approach to equity investment dating back to the late 19th

century.

Assumptions for the Equity Analysis:

1. Works only in normal share-market conditions with great reliability, it also works in abnormal

share-market conditions, but with low reliability.

2. Equity analysis is purely based on the INVESTMENT PHILOSOPHY, so the investment object has vital

importance associated to return along with risk.

3. Cash management gets the magnitude role, because the scenario of equity analysis is revolving

around the term money.

4. Portfolio management, risk management was up to the investor s knowledge.

5. Capital market trend is always a friend, whether it is short run or long run.

6. You are buying stock & not companies, so don t be curious or panic to do post-mortem of

companies performances.

7. History repeats: investors & speculators react the same way to the same types of events

homogeneously.

8. Capital market has a typical market psychology along with other issues like; perceptions, the crowd

Vs. the individual, tradition s & trust.

9. An individual perceptions about the investment return & associated risk may differ from individual

to individual.

10.Although the equity analysis is art as well as sciences so, it also has some exceptions.


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TECHNICAL ANALYSIS:

Technical analysis refers to the study of market generated data like prices & volume to

determine the future direction of prices movements.

Technical analysis mainly seeks to predict the short term price travels. It is important

criteria for selecting the company to invest. It also provides the base for decision-making in

investment. The one of the most frequently used yardstick to check & analyze underlying price

progress. For that matter a verity of tools was consider.

This Technical analysis is helpful to general investor in many ways. It provides important &

vital information regarding the current price position of the company.

Technical analysis involves the use of various methods for charting, calculating &

interpreting graph & chart to assess the performances & status of the price. It is the tool of

financial analysis, which not only studies but also reflecting the numerical & graphical relationship

between the important financial factors.

EQUITY ANALYSIS

ENVIRONMENT &ECONOMICAL ANALYSIS

FUNDAMENTAL

ANALYSIS

TECHNICAL

ANALYSIS


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The focus of technical analysis is mainly on the internal market data, i.e. prices & volume

data. It appeals mainly to short term traders. It is the oldest approach to equity investment dating

back to the late 19th century.

It uses charts and computer programs to study the stocks trading volume and price

movements in the hope of identifying a trend. In fact the decision made on the basis of technical

analysis is done only after inferring a trend and judging the future movement of the stock on the

basis of the trend. Technical Analysis assumes that the market is efficient and the price has already

taken into consideration the other factors related to the company and the industry. It is because of

this assumption that many think technical analysis is a tool, which is effective for short-term

investing.

History of Technical Analysis:

Technical Analysis as a tool of investment for the average investor thrived in the late

nineteenth century when Charles Dow, then editor of the Wall Street Journal, proposed the Dow

theory. He recognized that the movement is caused by the action/reaction of the people dealing in

stocks rather than the news in itself.

Technical analysis is a method of evaluating securities by analyzing the statistics generated

by market activity, such as past prices and volume. Technical analysts do not attempt to measure a

security's intrinsic value, but instead use charts and other tools to identify patterns that can

suggest future activity. Just as there are many investment styles on the fundamental side, there are

also many different types of technical traders. Some rely on chart patterns; others use technical

indicators and oscillators, and most use some combination of the two. In any case, technical

analysts' exclusive use of historical price and volume data is what separates them from their

fundamental counterparts. Unlike fundamental analysts, technical analysts don't care whether a

stock is undervalued the only thing that matters is a security's past trading data and what

information this data can provide about where the Security might move in the future.


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Basic premises of technical analysis:

1. Market prices are determined by the interaction of supply & demand forces.

2. Supply & demand are influenced by variety of supply & demand affiliated factors both

rational & irrational.

3. These include fundamental factors as well as psychological factors.

4. Barring minor deviations stock prices tend to move in fairly persistent trends.

5. Shifts in demand & supply bring about change in trends.

6. This shift s can be detected with the help of charts of manual & computerized action,

because of the persistence of trends & patterns analysis of past market data can be used to

predict future prices behaviors.

Drawbacks / limitations of technical analysis:

1. Technical analysis does not able to explain the rezones behind the employment or selection

of specific tool of Technical analysis.

2. The technical analysis failed to signal an uptrend or downtrend in time.

3. The technical analysis must be a self defeating proposition. As more & more people use,

employ it the value of such analysis trends to reduce.

Why we use TECHNICAL ANALYSIS?

1. Technical analysis provides information on the best entry and exit points for a trade.

2. On a chart, the trader can see where momentum is rising, a trend is forming, a price is

dipping or other events are developing that show the best entry point and time for the

most profitable trade. With the constant movement of various currencies against each

other in the Forex market, most traders will focus on using technical indicators to find and

place their trades.

IS TECHNICAL ANALYSIS DIFFICULT?

1. Technical analysis is not difficult, but it requires studying different types of charts such as

the hourly or daily charts, knowing which technical indicators to use and how to use them.


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2. Computers and the Internet have made this process much easier. Most brokers provide

basic charts and technical indicators for free or at a very low cost.

3. One way to avoid getting frustrated by all the lines, colors, and graphics is to focus on using

only a few indicators that will provide you with the information needed. Try not to clutter

your chart with too much information.

The future can be found in the past

If prices are based on investor expectations, then knowing what a security should sell for

(i.e., fundamental analysis) becomes less important than knowing what other investors expect it to

sell for. That's not to say that knowing what a security should sell for isn't important--it is. But

there is usually a fairly strong consensus of a stock's future earnings that the average investor

cannot disprove.

Technical analysis is the process of analyzing a security's historical prices in an effort to

determine probable future prices. This is done by comparing current price action (i.e., current

expectations) with comparable historical price action to predict a reasonable outcome. The devout

technician might define this process as the fact that history repeats itself while others would

suffice to say that we should learn from the past.

Usually the following tools & instruments are used to do the technical analysis:

Price Fields

Technical analysis is based almost entirely on the analysis of price and volume. The fields

which define a security's price and volume are explained below.

Open - This is the price of the first trade for the period (e.g., the first trade of the day). When

analyzing daily data, the Open is especially important as it is the consensus price after all interested

parties were able to "sleep on it."


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High - This is the highest price that the security traded during the period. It is the point at which

there were more sellers than buyers (i.e., there are always sellers willing to sell at higher prices,

but the High represents the highest price buyers were willing to pay).

Low - This is the lowest price that the security traded during the period. It is the point at which

there were more buyers than sellers (i.e., there are always buyers willing to buy at lower prices,

but the Low represents the lowest price sellers were willing to accept).

Close - This is the last price that the security traded during the period. Due to its availability, the

Close is the most often used price for analysis. The relationship between the Open (the first price)

and the Close (the last price) are considered significant by most technicians. This relationship is

emphasized in candlestick charts.

Volume - This is the number of shares (or contracts) that were traded during the period. The

relationship between prices and volume (e.g., increasing prices accompanied with increasing

volume) is important.

Open Interest - This is the total number of outstanding contracts (i.e., those that have not been

exercised, closed, or expired) of a future or option. Open interest is often used as an indicator.

Bid - This is the price a market maker is willing to pay for a security (i.e., the price you will receive if

you sell).

Ask - This is the price a market maker is willing to accept (i.e., the price you will pay to buy the

security).

Price Styles

Price in a chart can be displayed in four styles:

1. Bar Chart.

2. Line Chart.

3. Candlestick Chart.

4. Point and Figure Charts


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1) Bar Charts :

The highs and lows of a foreign currency are plotted in a diagram and the points are joined

with vertical lines (bars). A small horizontal tick to the left denotes the opening level while a small

horizontal tick to the right represents the closing price of each interval.

2) Line Chart.

It gives the detailed information about every aspect. The exchange rates for each time period are

plotted in a diagram and the points are joined. Prices on the y-axis, time on the x-axis. The line

chart chooses for example the closing price of consecutive time periods, but can also work with

daily, official fixings.

The relatively easy handling of line charts is a great advantage. Line charts do not show

price movements within a time period. This can be a problem because important information for

exchange rate analysis can be lost. This problem was remedied with the development of bar charts

that represent a more sophisticated form of line chart.


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3) Candlestick Chart.

A candlestick is black if the closing price is lower than the opening price. A candlestick is

white if the closing price is higher than the opening price.

In the 1600s, the Japanese developed a method of technical analysis to analyze the price of

rice contracts. This technique is called candlestick charting. Steven Nison is credited with

popularizing candlestick charting and has become recognized as the leading expert on their

interpretation. Candlestick charts display the open, high, low, and closing prices in a format similar

to a modern-day bar chart, but in a manner that extenuates the relationship between the opening

and closing prices. Candlestick charts are simply a new way of looking at prices, they don't involve

any calculations. Because candlesticks display the relationship between the open, high, low, and

closing prices, they cannot be displayed on securities that only have closing prices, nor were they

intended to be displayed on securities that lack opening prices.

The interpretation of candlestick charts is based primarily on patterns. The most popular

patterns are explained below.

Bullish Patterns

1) Long white (empty) line. This is a bullish line. It occurs when prices open near the low and close

significantly higher near the period's high.


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2) Hammer. This is a bullish line if it occurs after a significant downtrend. If the line occurs after a

significant up-trend, it is called a Hanging Man. A Hammer is identified by a small real body (i.e., a

small range between the open and closing prices) and a long lower shadow (i.e., the low is

significantly lower than the open, high, and lose). The body can be empty or filled-in.

3) Piercing line. This is a bullish pattern and the opposite of a dark cloud cover. The first line is a long

black line and the second line is a long white line. The second line opens lower than the first line's

low, but it closes more than halfway above the first line's real body.

4) Bullish engulfing lines. This pattern is strongly bullish if it occurs after a significant downtrend (i.e.,

it acts as a reversal pattern). It occurs when a small bearish (filled-in) line is engulfed by a large

bullish (empty) line.

5) Morning star. This is a bullish pattern signifying a potential bottom. The "star" indicates a possible

reversal and the bullish (empty) line confirms this. The star can be empty or filled-in.

6) Bullish doji star. A "star" indicates a reversal and a doji indicates indecision. Thus, this pattern

usually indicates a reversal following an indecisive period. You should wait for a confirmation (e.g.,

as in the morning star, above) before trading a doji star. The first line can be empty or filled in.

Bearish Patterns

1) Long black (filled-in) line. This is a bearish line. It occurs when prices open near the high and close

significantly lower near the period's low.

2) Hanging Man. These lines are bearish if they occur after a significant uptrend. If this pattern occurs

after a significant downtrend, it is called a Hammer. They are identified by small real bodies (i.e., a

small range between the open and closing prices) and a long lower shadow (i.e., the low was

significantly lower than the open, high, and close). The bodies can be empty or filled-in.

3) Dark cloud cover. This is a bearish pattern. The pattern is more significant if the second line's body

is below the center of the previous line's body (as illustrated).

4) Bearish engulfing lines. This pattern is strongly bearish if it occurs after a significant uptrend (i.e., it

acts as a reversal pattern). It occurs when a small bullish (empty) line is engulfed by a large bearish

(filled-in) line. Evening star. This is a bearish pattern signifying a potential top. The "star" indicates

a possible reversal and the bearish (filled-in) line confirms this. The star can be empty or filled in.


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5) Doji star. A star indicates a reversal and a doji indicates indecision. Thus, this pattern usually

indicates a reversal following an indecisive period. You should wait for a confirmation (e.g., as in

the evening star illustration) before trading a doji star.

6) Shooting star. This pattern suggests a minor reversal when it appears after a rally. The star's body

must appear near the low price and the line should have a long upper shadow.

Reversal Patterns

1) Long-legged doji. This line often signifies a turning point. It occurs when the open and close are

the same, and the range between the high and low is relatively large.

2) Dragon-fly doji. This line also signifies a turning point. It occurs when the open and close are the

same, and the low is significantly lower than the open, high, and closing prices.

3) Gravestone doji. This line also signifies a turning point. It occurs when the open, close, and low are

the same, and the high is significantly higher than the open, low, and closing prices.

4) Star. Stars indicate reversals. A star is a line with a small real body that occurs after a line with a

much larger real body, where the real bodies do not overlap. The shadows may overlap.

5) Doji star. A star indicates a reversal and a doji indicates indecision. Thus, this pattern usually

indicates a reversal following an indecisive period. You should wait for a confirmation (e.g., as in

the evening star illustration) before trading a doji star.

Neutral Patterns

1) Spinning tops. These are neutral lines. They occur when the distance between the high and low,

and the distance between the open and close, are relatively small.

2) Doji. This line implies indecision. The security opened and closed at the same price. These lines can

appear in several different patterns. Double doji lines (two adjacent doji lines) imply that a forceful

move will follow a breakout from the current indecision.

3) Harami ("pregnant" in English). This pattern indicates a decrease in momentum. It occurs when a

line with a small body falls within the area of a larger body. In this example, a bullish (empty) line

with a long body is followed by a weak bearish (filledin) line. This implies a decrease in the bullish

momentum.


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4) Harami cross. This pattern also indicates a decrease in momentum. The pattern is similar to a

harami, except the second line is a doji (signifying indecision).

Example

4 ) Point And Figure Charts

The point and figure chart is not well known or used by the average investor but it has had a

long history of use dating back to the first technical traders. This type of chart reflects price

movements and is not as concerned about time and volume in the formulation of the points. The

point and figure chart removes the noise, or insignificant price movements, in the stock, which can

distort traders' views of the price trends. These types of charts also try to neutralize the skewing

effect that time has on chart analysis.


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When first looking at a point and figure chart, you will notice a series of Xs and Os. The Xs

represent upward price trends and the 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, signalling a trend

change.

TRENDS IN TECHNICAL ANALYSIS

The Use of Trends

One of the most important concepts in technical analysis is that of trend. The meaning in finance

isn't all that different from the general definition of the term - a trend is really nothing more than

the generaldirection in which a security or market is headed. Take a look at the chart below:


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Isnt it hard to see that the trend is up. However, it's not always this easy to see a trend:

There are lots of ups and downs in this chart, but there isn't a clear indication of which direction

this security is headed.

A More Formal Definition

Unfortunately, trends are not always easy to see. In other words, defining a trend goes well

beyond the obvious. In any given chart, you will probably notice that prices do not tend to move in

a straight line in any direction, but rather in a series of highs and lows. In technical analysis, it is the

movement of the highs and lows that constitutes a trend. For example, an uptrend is classified as a

series of higher highs and higher lows, while a downtrend is one of lower lows and lower highs.

It is an example of an uptrend. Point 2 in the chart is the first high, which is determined after the


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price falls from this point. Point 3 is the low that is established as the price falls from the high. For

this to remain an uptrend each successive low must not fall below the previous lowest point or the

trend is deemed a reversal.

TYPE OF TREND

There are three types of trend:

1. Uptrend

2. Downtrend

3. Sideways/Horizontal Trends

As the names imply, when each successive peak and trough is higher, it's referred to as an

upward trend. If the peaks and troughs are getting lower, it's a downtrend. When there is little

movement up or down in the peaks and troughs, it's a sideways or horizontal trend. If you want to

get really technical, you might even say that a sideways trend is actually not a trend on its own,

but a lack of a well-defined trend in either direction. In any case, the market can really only trend

in these three ways: up, down or nowhere.

Trend Lengths

Along with these three trend directions, there are three trend classifications. A trend of any

direction can be classified as a long-term trend, intermediate trend or a short-term trend. In terms

of the stock market, a major trend is generally categorized as one lasting longer than a year. An

intermediate trend is considered to last between one and three months and a near-term trend is

anything less than a month. A long-term trend is composed of several intermediate trends, which

often move against the direction of the major trend. If the major trend is upward and there is a

downward correction in price movement followed by a continuation of the uptrend, the correction

is considered to be an intermediate trend. The short-term trends are components of both major


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and intermediate trends. Take a look a Figure 4 to get a sense of how these three trend lengths

might look.

When analyzing trends, it is important that the chart is constructed to best reflect the type of

trend being analyzed. To help identify long-term trends, weekly charts or daily charts spanning a

five-year period are used by chartists to get a better idea of the long-term trend. Daily data charts

are best used when analyzing both intermediate and short-term trends. It is also important to

remember that the longer the trend, the more important it is; for example, a one-month trend is

not as significant as a five-year trend.

Trend Lines

A trend line is a simple charting technique that adds a line to a chart to represent the trend

in the market or a stock. Drawing a trend line is as simple as drawing a straight line that follows a

general trend. These lines are used to clearly show the trend and are also used in the identification

of trend reversals.

An upward trend line is drawn at the lows of an upward trend. This line represents the

support the stock has every time it moves from a high to a low. Notice how the price is propped up

by this support. This type of trend line helps traders to anticipate the point at which a stock's price


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will begin moving upwards again. Similarly, a downward trend line is drawn at the highs of the

downward trend. This line represents the resistance level that a stock faces every time the price

moves from a low to a high.

Channels

A channel, or channel lines, is the addition of two parallel trend lines that act as strong areas

of support and resistance. The upper trend line connects a series of highs, while the lower trend

line connects a series of lows. A channel can slope upward, downward or sideways but, regardless

of the direction, the interpretation remains the same. Traders will expect a given security to trade

between the two levels of support and resistance until it breaks beyond one of the levels, in which

case traders can expect a sharp move in the direction of the break. Along with clearly displaying

the trend, channels are mainly used to illustrate important areas of support and resistance.


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A descending channel on a stock chart; the upper trend line has been placed on the highs and the

lower trend line is on the lows. The price has bounced off of these lines several times, and has

remained range-bound for several months. As long as the price does not fall below the lower line

or move beyond the upper resistance, the range-bound downtrend is expected to continue.

The Importance Of Trend

It is important to be able to understand and identify trends so that you can trade with rather

than against them. Two important sayings in technical analysis are "the trend is your friend" and

"don't buck the trend," illustrating how important trend analysis is for technical traders

IMPORTANCE OF VOLUME :

What Is Volume?

Volume is simply the number of shares or contracts that trade over a given period of time,

usually a day. The higher the volume, the more active the security. To determine the movement of

the volume (up or down), chartists look at the volume bars that can usually be found at the

bottom of any chart. Volume bars illustrate how many shares have traded per period and show

trends in the same way that prices do.


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Why Volume Is Important?

Volume is an important aspect of technical analysis because it is used to confirm trends and

chart patterns. Any price movement up or down with relatively high volume is seen as a stronger,

more relevant move than a similar move with weak volume. Say, for example, that a stock jumps

5% in one trading day after being in a long downtrend. Is this a sign of a trend reversal? This is

where volume helps traders. If volume is high during the day relative to the average daily volume,

it is a sign that the reversal is probably for real. On the other hand, if the volume is below average,

there may not be enough conviction to support a true trend reversal. Volume should move with

the trend. If prices are moving in an upward trend, volume should increase (and vice versa). If the

previous relationship between 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.


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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.

CHART PATTERNS :

A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a

sign of future price movements. Chartists use these patterns to identify current trends and trend

reversals and to trigger buy and sell signals.

In the first section of this tutorial, we talked about the three assumptions of technical

analysis, the third of which was that in technical analysis, history repeats itself. The theory behind

chart patterns is based on this assumption. The idea is that certain patterns are seen many times,

and that these patterns signal a certain high probability move in a stock. Based on the historic

trend of a chart pattern setting up a certain price movement, chartists look for these Patterns to

identify trading opportunities. While there are general ideas and components to every chart

pattern, there is no chart pattern that will tell you with 100% certainty where a security is headed.

This creates some leeway and debate as to what a good pattern looks like, and is a major reason

why charting is often seen as more of an art than a science. There are two types of patterns within

this area of technical analysis, reversal and continuation. A reversal pattern signals that a prior

trend will reverse upon completion of the pattern. A continuation pattern, on the other hand,

signals that a trend will continue once the pattern is complete. These patterns can be found over

charts of any timeframe. In this section, we will review some of the more popular chart patterns.


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1.Head And Shoulders

This is one of the most popular and reliable chart patterns in technical analysis. Head and

shoulders is a reversal chart pattern that when formed, signals that the security is likely to move

against the previous trend. As you can see, there are two versions of the head and shoulders chart

pattern. Head and shoulders top (shown on the left) is a chart pattern that is formed at the high of

an upward movement and signals that the upward trend is about to end. Head and shoulders

bottom, also known as inverse head and shoulders (shown on the right) is the lesser known of the

two, but is used to signal a reversal in a downtrend.

Head and shoulders top is shown on the left. Head and shoulders bottom, or inverse head and

shoulders, is on the right.

Both of these head and shoulders patterns are similar in that there are four main parts: two

shoulders, a head and a neckline. Also, each individual head and shoulder is comprised of a high

and a low. For example, in the head and shoulders top image shown on the left side, the left

shoulder is made up of a high followed by a low. In this pattern, the neckline is a level of support

or resistance. Remember that an upward trend is a period of successive rising highs and rising

lows. The head and shoulders chart pattern, therefore, illustrates a weakening in a trend by

showing the deterioration in the successive movements of the highs and lows.


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2.Cup And Handle

A cup and handle chart is a bullish continuation pattern in which the upward trend has

paused but will continue in an upward direction once the pattern is confirmed.

The price pattern forms what looks like a cup, which is preceded by an upward trend. The

handle follows the cup formation and is formed by a generally downward/sideways movement in

the security's price. Once the price movement pushes above the resistance lines formed in the

handle, the upward trend can continue.

3.Double Tops And Bottoms

This chart pattern is another well-known pattern that signals a trend reversal - it is

considered to be one of the most reliable and is commonly used. These patterns are formed after

a sustained trend and signal to chartists that the trend is about to reverse. The pattern is created

when a price movement tests support or resistance levels twice and is unable to break through.

This pattern is often used to signal intermediate and long-term trend reversals.


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A double top pattern is shown on the left, while a double bottom pattern is shown on the

right.In the case of the double top pattern, the price movement has twice tried to move above a

certain price level. After two unsuccessful attempts at pushing the price higher, the trend reverses

and the price heads lower. In the case of a double bottom (shown on the right), the price

movement has tried to go lower twice, but has found support each time. After the second bounce

off of the support, the security enters a new trend And heads upward.

4.Triangles

Triangles are some of the most well-known chart patterns used in technical analysis. The

three types of triangles, which vary in construct and implication, are the symmetrical triangle,

ascending and descending triangle. These chart patterns are considered to last anywhere from a

couple of weeks to several months.

The symmetrical is a pattern in which two trend lines converge toward each other. This

pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend in that


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direction. In an ascending triangle, the upper trend line is flat, while the bottom trend line is

upward sloping. This is generally thought of as a bullish pattern in which chartists look for an

upside breakout. In a descending triangle, the lower trend line is flat and the upper trend line is

descending. This is generally seen as a bearish pattern where chartists look for a downside

breakout.

5. Flag And Pennants

These two short-term chart patterns are continuation patterns that are formed when there

is a sharp price movement followed by a generally sideways price movement. This pattern is then

completed upon another sharp price movement in the same direction as the move that started the

trend. The patterns are generally thought to last from one to three weeks.

There is little difference between a pennant and a flag. The main difference between these price

movements can be seen in the middle section of the chart pattern. In a pennant, the middle

section is characterized by converging trend lines, much like what is seen in a symmetrical triangle.

The middle section on the flag pattern, on the other hand, shows a channel pattern, with no

convergence between the trend lines. In both cases, the trend is expected to continue when the

price moves above the upper trend line


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6. Wedge

The wedge chart pattern can be either a continuation or reversal pattern. It is similar to a

symmetrical triangle except that the wedge pattern slants in an upward or downward direction,

while the symmetrical triangle generally shows a sideways movement. The other difference is that

wedges tend to form over longer periods, usually between three and six months.

The fact that wedges are classified as both continuation and reversal patterns can make

reading signals confusing. However, at the most basic level, a falling wedge is bullish and a rising

wedge is bearish. We have a falling wedge in which two trend lines are converging in a downward

direction. If the price was to rise above the upper trend line, it would form a continuation pattern,

while a move below the lower trend line would signal a reversal pattern

7. Triple Tops And Bottoms

Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis.

These are not as prevalent in charts as head and shoulders and double tops and bottoms, but they

act in a similar fashion. These two chart patterns are formed when the price movement tests a

level of support or resistance three times and is unable to break through; this signals a reversal of

the prior trend.


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Confusion can form with triple tops and bottoms during the formation of the pattern

because they can look similar to other chart patterns. After the first two support/resistance tests

are formed in the price movement, the pattern will look like a double top or bottom, which could

lead a chartist to enter a reversal position too soon.

8. Rounding Bottom

A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that signals

a shift from a downward trend to an upward trend. This pattern is traditionally thought to last

anywhere from several Months to several years.


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Round Numbers and Support and Resistance:

One type of universal support and resistance that tends to be seen across a large number of

securities is round numbers. Round numbers like 10, 20, 35, 50, 100 and 1,000 tend be important

in support and resistance levels because they often represent the major psychological turning

points at which many traders will make buy or sell decisions.

Buyers will often purchase large amounts of stock once the price starts to fall toward a

major round number such as $50, which makes it more difficult for shares to fall below the level.

On the other hand, sellers start to sell off a stock as it moves toward a round number peak, making

it difficult to move past this upper level as well. It is the increased buying and selling pressure at

these levels that makes them important points of support and resistance and, in many cases,

major psychological points as well.

Role Reversal

Once a resistance or support level is broken, its role is reversed. If the price falls below a

support level, that level will become resistance. If the price rises above a resistance level, it will

often become support. As the price moves past a level of support or resistance, it is thought that

supply and demand has shifted, causing the breached level to reverse its role. For a true reversal

to occur, however, it is important that the price make a strong move through either the support or

resistance.


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For example, as you can see, the dotted line is shown as a level of resistance that has

prevented the price from heading higher on two previous occasions (Points 1 and 2). However,

once the resistance is broken, it becomes a level of support (shown by Points 3 and 4) by propping

up the price and preventing it from heading lower again.

Many traders who begin using technical analysis find this concept hard to believe and don't

realize that this phenomenon occurs rather frequently, even with some of the most well-known

companies. For example, this phenomenon is evident on the Wal-Mart Stores Inc. (WMT) chart

between 2003 and 2006. Notice how the role of the $51 level changes from a strong level of

support to a level of resistance.

In almost every case, a stock will have both a level of support and a level of resistance and will

trade in this range as it bounces between these levels.

The Importance of Support and Resistance

Support and resistance analysis is an important part of trends because it can be used to

make trading decisions and identify when a trend is reversing.

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


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of support and resistance, the trend is likely to continue. It is important to note, however, that a

break beyond a level of support or resistance does not always have to be a reversal.

For example, if prices moved above the resistance levels of an upward trending channel, the

trend have 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.

MOVING AVERAGES :

Most chart patterns show a lot of variation in price movement. This can make it difficult for

traders to get an idea of a security's overall trend. One simple method traders use to combat this

is to apply moving averages. A moving average is the average price of a security over a set amount

of time. By plotting a security's average price, the price movement is smoothed out. Once the day-

to-day fluctuations are removed, traders are better able to identify the true trend and increase the

probability that it will work in their favor.

Types Of Moving Averages:-

There are a number of different types of moving averages that vary in the way they are

calculated, but how each average is interpreted remains the same. The calculations only differ in


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regards to the weighting that they place on the price data, shifting from equal weighting of each

price point to more weight being placed on recent data. The three most common types of moving

averages are simple, linear and exponential.

1. Simple Moving Average (SMA)

This is the most common method used to calculate the moving average of prices. It simply takes

the sum of all of the past closing prices over the time period and divides the result by the number

of prices used in the calculation. For example, in a 10-day moving average, the last 10 closing

prices are added together and then divided by 10. As you can see in Figure 1, a trader is able to

make the average less responsive to changing prices by increasing the number of periods used in

the calculation. Increasing the number of time periods in the calculation is one of the best ways to

gauge the strength of the long-term trend and the likelihood that it will reverse.

Many individuals argue that the usefulness of this type of average is limited because each point in

the data series has the same impact on the result regardless of where it occurs in the sequence.

The critics argue that the most recent data is more important and, therefore, it should also have a

higher weighting. This type of criticism has been one of the main factors leading to the invention of

other forms of moving averages.


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2. Linear Weighted Average

This moving average indicator is the least common out of the three and is used to address

the problem of the equal weighting. The linear weighted moving average is calculated by taking

the sum of all the closing prices over a certain time period and multiplying them by the position of

the data point and then dividing by the sum of the number of periods. For example, in a five-day

linear weighted average, today's closing price is multiplied by five; yesterday's by four and so on

until the first day in the period range is reached. These numbers are then added together and

divided by the sum of the multipliers.

3. Exponential Moving Average (EMA)

This moving average calculation uses a smoothing factor to place a higher weight on recent

data points and is regarded as much more efficient than the linear weighted average. Having an

understanding of the calculation is not generally required for most traders because most charting

packages do the calculation for you. The most important thing to remember about the exponential

moving average is that it is more responsive to new information relative to the simple moving

average. This responsiveness is one of the key factors of why this is the moving average of choice

among many technical traders. A 15-period EMA raises and falls faster than a 15-period SMA. This

slight difference doesnt seem like much, but it is an important factor to be aware of since it can

affect returns.


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Major Uses of Moving Averages

Moving averages are used to identify current trends and trend reversals as well as to set up

support and resistance levels. Moving averages can be used to quickly identify whether a security

is moving in an uptrend or a downtrend depending on the direction of the moving average. When

a moving average is heading upward and the price is above it, the security is in an uptrend.

Conversely, a downward sloping moving average with the price below can be used to signal a

downtrend.

Another method of determining momentum is to look at the order of a pair of moving averages.

When a short-term average is above a longer-term average, the trend is up. On the other hand, a

long-term average above a shorter-term average signals a downward movement in the trend.

Moving average trend reversals are formed in two main ways: when the price moves through a

moving average and when it moves through moving average crossovers. The first common signal is

when the price moves through an important moving average. For example, when the price of a

security that was in an uptrend falls below a 50-period moving average, it is a sign that the uptrend

may be reversing.


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The other signal of a trend reversal is when one moving average crosses through another. For

example, if the 15-day moving average crosses above the 50-day moving average, it is a positive

sign that the price will start to increase.

If the periods used in the calculation are relatively short, for example 15 and 35, this could

signal a short-term trend reversal. On the other hand, when two averages with relatively long time

frames cross over (50 and 200, for example), this is used to suggest a long-term shift in trend.

Another major way moving averages are used is to identify support and resistance levels. It

is not uncommon to see a stock that has been falling stop its decline and reverse direction once it

hits the support of a major moving average. A move through a major moving average is often used

as a signal by technical traders that the trend is reversing. For example, if the price breaks through

the 200-day moving average in a downward direction, it is a signal that the uptrend is reversing.


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Moving averages are a powerful tool for analyzing the trend in a security. They provide

useful support and resistance points and are very easy to use. The most common time frames that

are used when creating moving averages are the 200-day, 100-day, 50-day, 20-day and 10-day. The

200-day average is thought to be a good measure of a trading year, a 100-day average of a half a

year, a 50-day average of a quarter of a year, a 20-day average of a month And 10 day average of

two weeks.

Moving averages help technical traders smooth out some of the noise that is found in day-

to-day price movements, giving traders a clearer view of the price trend. So far we have been

focused on price movement, through charts and averages. In the next section, we'll look at some

other techniques used to confirm price movement and patterns.

TECHNICAL INDICATORS

ACCUMULATION/DISTRIBUTION

Overview

The Accumulation/Distribution is a momentum indicator that associates changes in price

and volume. The indicator is based on the premise that the more volume that accompanies a price

move, the more significant the price move.


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Interpretation

The Accumulation/Distribution is really a variation of the more popular On Balance Volume

indicator. Both of these indicators attempt to confirm changes in prices by comparing the volume

associated with prices.

When the Accumulation/Distribution moves up, it shows that the security is being

accumulated, as most of the volume is associated with upward price movement. When the

indicator moves down, it shows that the security is being distributed, as most of the volume is

associated with downward price movement. Divergences between the Accumulation/Distribution

and the security's price imply a change is imminent. When a divergence does occur, prices usually

change to confirm the Accumulation/Distribution. For example, if the indicator is moving up and

the security's price is going down, prices will probably reverse.

BOLLINGER BANDS

Overview

Bollinger Bands are similar to moving average envelopes. The difference between Bollinger

Bands and envelopes is envelopes are plotted at a fixed percentage above and below a moving

average, whereas Bollinger Bands are plotted at standard deviation levels above and below a

moving average. Since standard deviation is a measure of volatility, the bands are self-adjusting:

widening during volatile markets and contracting during calmer periods. Bollinger Bands were

created by John Bollinger.

Interpretation

Bollinger Bands are usually displayed on top of security prices, but they can be displayed on

an indicator. These comments refer to bands displayed on prices.

As with moving average envelopes, the basic interpretation of Bollinger Bands is that prices

tend to stay within the upper- and lower-band. The distinctive characteristic of Bollinger Bands is

that the spacing between the bands varies based on the volatility of the prices. During periods of

extreme price changes (i.e., high volatility), the bands widen to become more forgiving. During

periods of stagnant pricing (i.e., low volatility), the bands

narrow to contain prices.

Following are characteristics of Bollinger Bands.


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Sharp price changes tend to occur after the bands tighten, as volatility lessens.

When prices move outside the bands, a continuation of the current trend is

implied.

Bottoms and tops made outside the bands followed by bottoms and tops made

inside the bands call for reversals in the trend.

A move that originates at one band tends to go all the way to the other band. This

observation is useful when projecting price targets.

ENVELOPES (TRADING BANDS)

Overview

An envelope is comprised of two moving averages. One moving average is shifted upward

and the second moving average is shifted downward.

Interpretation

Envelopes define the upper and lower boundaries of a security's normal trading range. A sell

signal is generated when the security reaches the upper band whereas a buy signal is generated at

the lower band. The optimum percentage shift depends on the volatility of the security--the more

volatile, the larger the percentage. The logic behind envelopes is that overzealous buyers and

sellers push the price to the extremes (i.e., the upper and lower bands), at which point the prices

often stabilize by moving to more realistic levels. This is similar to the interpretation of Bollinger

Bands.

MACD

Overview

The MACD ("Moving Average Convergence/Divergence") is a trend following momentum

indicator that shows the relationship between two moving averages of prices. The MACD was

developed by Gerald Appel, publisher of Systems and Forecasts. The MACD is the difference

between a 26-day and 12-day exponential moving average. A 9-day exponential moving average,

called the "signal" (or "trigger") line is plotted on top of the MACD to show buy/sell opportunities.

(Appel specifies exponential moving averages as percentages. Thus, he refers to these three

moving averages as 7.5%, 15%, and 20% respectively.)


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Interpretation

The MACD proves most effective in wide-swinging trading markets. There are three popular

ways to use the MACD: crossovers, overbought/oversold conditions, and divergences.

Crossovers

The basic MACD trading rule is to sell when the MACD falls below its signal line. Similarly, a

buy signal occurs when the MACD rises above its signal line. It is also popular to buy/sell when the

MACD goes above/below zero.

Overbought/Oversold Conditions

The MACD is also useful as an overbought/oversold indicator. When the shorter moving

average pulls away dramatically from the longer moving average (i.e., the MACD rises), it is likely

that the security price is overextending and will soon return to more realistic levels. MACD

overbought and oversold conditions exist vary from security to security.

Divergences

A indication that an end to the current trend may be near occurs when the MACD diverges

from the security. A bearish divergence occurs when the MACD is making new lows while prices fail

to reach new lows. A bullish divergence occurs when the MACD is making new highs while prices

fail to reach new highs. Both of these divergences are most significant when they occur at

relatively overbought/oversold levels.

PRICE OF RATE-OF-CHANGE

Overview

The Price Rate-of-Change (ROC) indicator, which is also referred to as simply Momentum, is

a pure momentum oscillator that measures the percent change in price from one period to the

next. The ROC calculation compares the current price with the price "n" periods ago. The plot

forms an oscillator that fluctuates above and below the zero line as the Rate-of-Change moves


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from positive to negative. As a momentum oscillator, ROC signals include centerline crossovers,

divergences and overbought-oversold readings. Divergences fail to foreshadow reversals more

often than not so this article will forgo a discussion on divergences. Even though centerline

crossovers are prone to whipsaw, especially short-term, these crossovers can be used to identify

the overall trend. Identifying overbought or oversold extremes comes natural to the Rate-of-

Change oscillator.

ROC = [(Close - Close n periods ago) / (Close n periods ago)] * 100

Interpretation

The Price of Rate-of-Change indicator is momentum in its purest form. It measures the

percentage increase or decrease in price over a given period of time. Think of its as the rise (price

change) over the run (time). In general, prices are rising as long as the Rate-of-Change remains

positive. Conversely, prices are falling when the Rate-of-Change is negative. ROC expands into

positive territory as an advance accelerates. ROC dives deeper into negative territory as a decline

accelerates. There is no upward boundary on the Rate-of-Change. The sky is the limit for an

advance. There is, however, a downside limit. Securities can only decline 100%, which would be to

zero. Even with these lopsided boundaries, Rate-of-Change produces identifiable extremes that

signal overbought and oversold conditions.

WILDER RELATIVE STRENGTH INDEX

Overview

Developed J. Welles Wilder, the Relative Strength Index (RSI) is a momentum oscillator that

measures the speed and change of price movements. RSI oscillates between zero and 100.

Traditionally, and according to Wilder, RSI is considered overbought when above 70 and oversold

when below 30. Signals can also be generated by looking for divergences, failure swings and center

line crossovers. RSI can also be used to identify the general trend.

RSI = 100 - (100/ 1+RS)

RS = Average gain/ Average loss


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Interpretation

When Wilder introduced the RSI, he recommended using a 14-day RSI. Since then, the 9-day and

25-day RSIs have also gained popularity. Because you can vary the number of time periods in the

RSI calculation, I suggest that you experiment to find the period that works best for you. (The

fewer days used to calculate the RSI, the more volatile the indicator.)

The RSI is a price-following oscillator that ranges between 0 and 100. A popular method of

analyzing the RSI is to look for a divergence in which the security is making a new high, but the RSI

is failing to surpass its previous high. This divergence is an indication of an impending reversal.

When the RSI then turns down and falls below its most recent trough, it is said to have completed

a "failure swing."

ON BALANCE VOLUME

Overview

On Balance Volume ("OBV") is a momentum indicator that relates volume to price change.

On Balance Volume was developed by Joe Granville

Interpretation

On Balance Volume is a running total of volume. It shows if volume is flowing into or out of

a security. When the security closes higher than the previous close, all of the day's volume is

considered up-volume. When the security closes lower than the previous close, all of the day's

volume is considered down-volume.

PRICE OSCILLATOR

Overview

The Price Oscillator displays the difference between two moving averages of a securitys

price. The difference between the moving averages can be expressed in either points or

percentages. The Price Oscillator is almost identical to the MACD, except that the Price Oscillator

can use any two user-specified moving averages. (The MACD always uses 12- and 26-day moving

averages, and always expresses the difference in points.)


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Interpretation

Moving average analysis typically generates buy signals when a short-term moving average

(or the securities price) rises above a longer-term moving average. Conversely, sell signals are

generated when a shorter-term moving average (or the securitys price) falls below a longer-term

moving average. The Price Oscillator illustrates the cyclical and often profitable signals generated

by these one- or two-moving-average systems.

VOLUME

Overview

Volume is simply the number of shares (or contracts) traded during a specified time frame

(e.g., hour, day, week, month, etc). The analysis of volume is a basic yet very important element of

technical analysis. Volume provides clues as to the intensity of a given price move.

Interpretation

Low volume levels are characteristic of the indecisive expectations that typically occur during

consolidation periods (i.e., periods where prices move sideways in a trading range). Low volume

also often occurs during the indecisive period during market bottoms. High volume levels are

characteristic of market tops when there is a strong consensus that

prices will move higher. High volume levels are also very common at the beginning of new trends

(i.e., when prices break out of a trading range). Just before market bottoms, volume will often

increase due to panic-driven selling.

Volume can help determine the health of an existing trend. A healthy up-trend should have

higher volume on the upward legs of the trend, and lower volume on the downward (corrective)

legs. A healthy downtrend usually has higher volume on the downward legs of the trend and lower

volume on the upward (corrective) legs.


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VOLUME OSCILLATOR

Overview

The Volume Oscillator displays the difference between two moving averages of a security's

volume. The difference between the moving averages can be expressed in either points or

percentages.

Interpretation

We can use the difference between two moving averages of volume to determine if the

overall volume trend is increasing or decreasing. When the Volume Oscillator rises above zero, it

signifies that the shorter-term volume moving average has risen above the longerterm volume

moving average, and thus, that the short-term volume trend is higher (i.e., more volume) than the

longer-term volume trend.

There are many ways to interpret changes in volume trends. One common belief is that rising

prices coupled with increased volume, and falling prices coupled with decreased volume, is bullish.

Conversely, if volume increases when prices fall, and volume decreases when prices rise, the

market is showing signs of underlying weakness. The theory behind this is straight forward. Rising

prices coupled with increased volume signifies increased upside participation (more buyers) that

should lead to a continued move. Conversely, falling prices coupled with increased volume (more

sellers) signifies decreased upside participation.


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OBJECTIVE OF THE STUDY

The objectives of the study are stated as under:

1. To learn when to buy, sell and hold the securities. A sample of five is taken for this

purpose.

2. To analyze the recent pattern of price movement and help investor to make profits.

3. To know the method of calculating the various technical indicators and to interpret it.

4. To understand the repetitive trends which reappear in the course of time.

5. To analyze the pattern of price movement and its relation with volume traded,

determining the proper timing of investment.

SCOPE OF THE STUDY

1. The research is based upon the price of five telecom companies i.e. Bharti Airtel, Idea

Cellular, Reliance Communication Ltd., Tale Communication Ltd. And Tata Tele services.

2. The research is based upon oscillators, tool for technical analysis and involves the

calculation of three oscillators that are SMA, ROC, Wilder RSI.

3. The research data includes the monthly closing prices quoted on Bombay Stock Exchange.

4. SMA has been calculated by taking 12 period (Item).

5. ROC has been calculated by taking 12 period (Item).

6. Wilder RSI has been calculated by taking 12 period (Item).

LIMITATION OF THE STUDY

Technical analysis is usually undertaken after taking historical data of of share price ofcompany of longer period, only three year data has been taken.

The market price of shares also get effected by happening on the political and economicfactors or fundamentals of the company i.e. changes in an intrinsic value of the shared ,

hence all the deviations cannot be contributed to the market sentiments.


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Oscillators are only a tool for technical analysis and cannot be used without consideringother tools. There are several oscillators but only the major one were selected to

interpreting the market trends.

The trends may not hold true circumstances involving profit taking, short selling or anyother scams.


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COMPANY OVERVIEW

Introduction to Bhubaneswar Stock Exchange (BHSE)

Initial step was taken by the Department of Industry, Govt. of Orissa and Industrial

Promotion & Investment Corporation of Orissa Ltd. (IPICOL) in the early eighties to set up a Stock

Exchange in the State of Orissa. Subsequently, Bhubaneswar Stock Exchange was incorporated on

17th April,1989 as a Public Company, limited by guarantee with an object to facilitate, assist,

regulate and control the business of dealing in stocks, shares and like securities in the State of

Orissa. Ministry of Finance, Govt. of India granted recognition to the Stock Exchange on 5th

June,1989 under the provisions of the Securities Contracts (Regulation) Act,1956 for an initial

period of five years. Thereafter, the recognition of the Stock Exchange is being renewed from time

to time by Securities and Exchange Board of India (SEBI).

On being recognized during 1989, Bhubaneswar Stock Exchange admitted 161 member-

brokers in the first phase and commenced its trading operation on 2nd January, 1991. To impart

greater liquidity in both shares and debentures and to increase the volume of business, the

Exchange has expanded its membership strength during the year 1995 by admitting 75 more

member-brokers.

However, the status of the Stock Exchange was converted from a Company limited by

guarantee, to a Company limited by shares during the year 2005 pursuant to The Bhubaneswar

Stock Exchange (Corporatization and Demutualization) Scheme, 2005 approved by SEBI.

MANAGEMENT

The affairs of the Stock Exchange are managed by the Board of Directors. The Board of Directors of

the Stock Exchange comprises of 8 (Eight) Directors of which 2 are Trading Member Directors, 2 are

Public Interest Directors, 3 are Shareholder Directors and a Chief Executive Director. However, the

Board of Directors of the Stock Exchange is under supersession by SEBI w.e.f. 3rd January,2003.

Shri J.P. Verma, IPS (Retd.) was appointed by SEBI as Administrator of the Stock Exchange to

discharge the powers and duties of the Board of Directors. He continued to act as the

Administrator of the Stock Exchange upto 30th September,2006. Thereafter, SEBI, while extending

the period of supersession of Board of Directors of the Exchange, has designated Shri Vivekananda

Pattanayak, IAS (Retd.) as the Administrator of Bhubaneswar Stock Exchange to discharge the


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powers and duties of its Board of Directors with effect from 1st October, 2006. Accordingly, Shri

Pattanayak, IAS (Retd.) has taken over as the Administrator of Bhubaneswar Stock Exchange w.e.f.

3rd October,2006 to discharge the powers and duties of the Board of Directors of the Stock

Exchange. The Stock Exchange, while recording the valuable service rendered by Shri J.P. Verma,

IPS (Retd.) during his tenure as the Administrator, welcomes Shri Vivekananda Pattanayak, IAS

(Retd.) as its Administrator. The Board of Directors/Administrator of the Stock Exchange is, atpresent, assisted by 11 qualified officials.

AUTOMATION

The entire trading and settlement operation was computerized since inception. However, the

Exchange switched over to Screen Based Trading with effect from 20th May,1997 through which

the member-brokers conducted trading on line thereby bringing to an end to the old tradition of

open out-cry system of trading.

SETTLEMENT SYSTEM

The Settlement system of the Exchange is carried out on Daily Rolling Basis (T+1) as per the SEBI

Guidelines issued from time to time. Pay-in/pay-out, in terms of Settlement Calendar, is affected

well in time through the Centralized Banking System of the Stock Exchange. Canara Bank has

established a Branch to facilitate the pay-in/pay-out operation as well as the banking transactions

of the Stock Exchange and its trading members.

CLEARING HOUSE

Bhubaneswar Stock Exchange has its own Clearing House. The transactions entered among the

trading members of the Exchange are settled by delivery and payment obligations through the

Clearing House of the Stock Exchange in accordance with the prescribed settlement program under

a Centralized Delivery and Payment System.


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INTER-CONNECTIVITY

Bhubaneswar Stock Exchange has played an instrumental role, among others, in mooting the idea

of establishing of an Inter-connected Market System (ICMS). This effort was resulted in establishing

Inter-connected Stock Exchange of India of Ltd. to provide a nationwide equity market through

the trading members of participating Stock Exchanges. It has also facilitated the trading members

of participating Stock Exchanges including Bhubaneswar Stock Exchange, to trade on the National

Stock Exchange segment.

LISTED STOCKS

Despite introduction of SEBI Delisting Guidelines, 2003, Bhubaneswar Stock Exchange continued to

have listing of securities of several companies having aggregate paid-up capital of around Rs.2, 200

crores.

PRIMARY MARKET

Bhubaneswar Stock Exchange has been playing an active role for the growth of primary market

activities with the support of its trading members. The Stock Exchange ensures promotional steps

for participation of investing public at a large scale, in the public offers of several companies.

CUSTOMERS PROTECTION FUND

Investors protection is the cornerstone of a vibrant market. Bhubaneswar Stock Exchange has

established a Statutory Fund namely, Bhubaneswar Stock Exchange Customers Protection Fund

with an object to protect the customers from the risk of defaulting trading members. At present, as

per the Rules of the said Fund, a customer is entitled to be indemnified to a maximum of Rs.25,

000/-towards his claim against a defaulter trading member of the Stock Exchange.

INVESTORS SERVICE CELL

Bhubaneswar Stock Exchange has an Investors Service Cell which also ensures protection of the

investors. It promptly attends the complaints of various nature lodged by the investors against

companies as well as the trading members of the Stock Exchange and plays an important role in a


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friendly approach to redress the investors grievances. The Investors Service Cell undertakes due

care to build up confidence of the common investors on the capital market.

LIBRARY

Bhubaneswar Stock Exchange has a good library. It has a list of several books and guidelines

relating to capital market. It also subscribes Periodicals and Financial News Dailies for readers. In

addition to this, prime magazines for new issues, annual reports of several listed companies are

available with it. The library of the Stock Exchange is, thus playing a promotional role for

enrichment of knowledge of the staff, trading members, investors and research scholars at large.

The Stock Exchange with the support of its library also helps the management students to prepare

their project reports.

EMPLOYMENT

Bhubaneswar Stock Exchange has also been instrumental in generating various nature of

employment, both directly and indirectly, in the State of Orissa. As a result, apart from direct

employment for its own purpose, it has created opportunity for generation of a number of indirect

appointments in various capacities such as sub-brokers, authorized assistants, authorized

representatives and other staff in the stock-broking firms.

FUTURE UNDERTAKINGS

Bhubaneswar Stock Exchange has undertaken a number of measures to activate business in

securities and to spread the message of goodwill among the investing public. Such measures are:

To provide Depository Service so that the trading in securities and supporting depository

operation connected to it shall be carried out under an umbrella.

To upgrade the infrastructural facilities to facilitate expansion of trading activities.

To host Training Program for trading member as well as employees of the Stock Exchange.

To introduce, provide and conduct a Course for imparting education on Indian Stock

Market to the aspirants.

To construct a modern hi-tech building of the Stock Exchange.


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ORGANIZATION STRUCTURE

The affairs of the BHSE are managed by a Board of Directors consisting 8 Directors from the

following categories:

1. 2 (Two) Trading Member Directors

2. 2 (Two) Public Interest Directors

3. 3 (Three) Shareholder Directors

4. 1 (One) Director in the capacity of Chief Executive Officer

CEOShri Debraj Biswal

Public Interest Directors

. Shri VivekanandaPattanayak

Shri Bibekananda Mohanty

Trading Member Directors

Smt. Asha Manjari Mishra

Shri Shankar LalAgrawalla

Shareholder Directors

Shri B.K. Mohapatra

Shri Deelip KumarChoudhury

Shri K.N. Ravindra


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KEY PERSONNEL

TRADING MEMBERS

The trading membership strength of Bhubaneswar Stock Exchange is 196 at present against the

sanctioned strength of 350.

Corporatization & Demutualization of Bhubaneswar Stock Exchange

Pursuant to Incorporation of new provisions by way of amendment to the Securities Contracts

(Regulation) Act,1956 by the Govt. of India during the year 2004 requiring all the Stock Exchanges

in the country to be corporatized and demutualised, Bhubaneswar Stock Exchange, under a

SR. EXECUTIVES

PRAYABRATA

RAJGURUMAMATA PATTNAIK

CHINMAYA

MISHRAKAILASH CHANDRA

SATAPATHY

ASST. MANAGERS

BIPIN BIHARI DUTTA BIBHU PRASAD CHHOTRAYA ABHAYA KUMAR MISHRA

SECRETARY

CHINMAYA DASH

MANAGERS

GADADHAR MISHRA PRADEEP MUDULI TAPAN RANJAN PATNAIK


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Scheme of Corporatization and Demutualization approved and notified by Securities and Exchange

Board of India (SEBI) on 15th September,2005, was registered afresh as a Company having share

capital under the Companies Act, 1956 on revocation of license issued previously to it u/s 25 of the

said Act and got itself corporatized. In this exercise, in terms of provisions of BHSE (Corporatization

& Demutualization) Scheme,2005, 18,61,980 equity shares of Re.1/- each of Bhubaneswar Stock

Exchange were issued to 100 interested applicant trading members.

As regards the compliance of the part of demutualizat

technical analysis- dipak pr

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