A Comparative Study On

Fundamental and Technical Analysis

As An Indicator For Investment

Decision-Making

Submitted to

CHITKARA BUSINESS SCHOOL

in partial fulfilment of the requirements for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by: Supervised by:

Ankush Padha Dr. Renuka Sharma

CUN110551002 (Associated Finance Prof.)

CHITKARA BUSINESS SCHOOL

CHITKARA UNIVERSITY

2011-13

DECLARATION

I, “Ankush Padha”. hereby declare that the work presented herein is genuine work done

originally by me and has not been published or submitted elsewhere. Any literature, date or

work done by others and cited in the report has been given due acknowledgement and

listed in the reference section.

Ankush Padha

(Student’s Name & Signature)

CUN110551002

(Roll NO.)

Date: 15 th July 2012

TO WHOMSOEVER IT MAY CONCERN

This is to certify that the project titled ” A Comparative Study On Fundamental and Technical Analysis As An Indicator For Investment Decision-Making” carried out

By Mr. Ankush Padha, s/o Mr.Arun Kumar Sharma has been accomplished

under my guidance &supervision as a duly registered MBA student of Chitkara university. This project is being submitted by him in the partial fulfilment of the requirements for the award of the Master of Business Administration from Chitkara university.

His dissertation represent his original work and is worthly of consideration for the award

of the degree of Master of Business Administration.

EXECUTIVE SUMMARY

EQUITY ANALYSIS is the systematic study of the performance of companies in stock

market with help of fundamental analysis and technical analysis. Equity analysis

consists of fundamental analysis & technical analysis. While decision in investment of

shares should be base on actual movement of shares price measured more in money &

percentage term & nothing else.

In equity analysis, calculations are based on FACTS & not on HOPE. The subject of equity

analysis, i.e. the to attempt to determine future share price movement with the help of

RATIO ANALYSIS, STUDY OF GRAPH. Equity analysis does not discuss how to buy &

sell shares, but does discuss the methods, which enables the investor to arriving at buying &

selling decision.

The Technical Approach to investment is essentially a reflection of the idea that prices

moves in a trend that are determined by the changing attitude of investor’s 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 the trend has reversed.

CONTENTS

CHAPTERS PARTICULARS PAGE NO.

1. INTRODUCTION TO THE CORPORATION AND COMPANY 1-19 1.1 About Destimoney 1 1.2 Services provided by the Organization 5 1.3 Key Management 6 1.4 Business Network and Source of Finance 9 1.5 Mission and Vision 12 1.6 SWOT analysis of the company 13 1.7 Distribution structure 16 1.8 Financial Statement And Trend Analysis of the Company 17 1.9 Conclusion 19

2. INTRODUCTION AND RESEARCH METHODOLOGY 20-232.1 Introduction 20

2.2 Research Methodology 21 2.2.1Need for the study 21 2.2.2 Objectives of the study 21

2.2.3Sources of Data 22 2.2.4Research Design 22 2.2.5Sampling Method 22

2.2.6Sampling Size 222.2.7 Limitations of the study 23

2.2.8Chapter Plan 23

3. FUNAMENTAL ANALYSIS 25-353.1 Meaning of fundamental Analysis 253.2 Two analytical models 263.3 Interpretation 27

3.3.1Economic analysis 273.3.2Industry analysis 293.3.3Company analysis 30

3.4 Use by different portfolio styles 333.5 Top-down and bottom-up 333.6 Procedures 343.7 Conclusion 34

4. TECHNICAL ANALYSIS 36-714.1 Meaning of Technical Analysis 364.2 Assumptions of Technical Analysis 364.3 Technical Analysis and Fundamental Analysis 384.4 The Critics of Technical Analysis 394.5 Co-existence of Technical Analysis and Fundamental Analysis 40

4.6 Technical Tools 41

4.6.8 Support and Resistance 414.6.9 Volume 444.6.10Random-Walk Hypothesis 464.6.11 Technical Trends 464.6.12 Trend-Lengths 474.6.13 Trend-Line 484.6.14 Channels 494.6.15 Technical Charts 50

4.7 Technical Indicators 634.7.1Moving Average Convergence Divergence 644.7.2Relative Strength Index 664.7.3Stochastic Oscillator 664.7.4The Dow-Theory 674.7.5The Short-Interest Ratio 684.7.6The Confidence Index 694.7.7Spreads 694.7.8The Advance-Decline Ratio 694.7.9The Market Breadth Index 694.7.10The Odd-lot Ratio 704.7.11Insider Transactions 704.7.12The Credit-Balance Theory 714.7.13Performance of Linked Markets 71

4.8 Summary 71

5. A SAMPLE SURVEY 75-875.1 Objectives of the Survey 755.2 Sample Composition 755.3 Outcomes of the Survey 785.4 Opinion of the Investors 87

6. CONCLUSION AND SUGGESTIONS 90-926.1 Findings 906.2 Suggestions 916.3 Conclusion 92

BIBLIOGRAPHY 93WEBLIOGRAPHY 94APPENDIX 95

CHAPTER – 1

COMPANY PROFILE

Enterprises Pvt. Ltd.

1.1 ABOUT DESTIMONEY

Destimoney’s origins can be traced back to the City of London over 80 years ago. At that

time called Dawnay Day, it entered India in 2006, was purchased by New Silk Route in 2008,

and under its new share holders and management was renamed Destimoney. NSR (New Silk

Route) had acquired 100% stake in the business.

Vivek Vig is the CEO of Destimoney group. He is former Country Head of Centurion Bank

of Punjab. He also worked as the Country Head of Citibank in Saudi Arabia, Turkey

Business Head in Taiwan and Poland.

Currently, Destimoney has a network of over 130 branches spread in over 70 locations in 20

states across the country. With an unrelenting focus on twin values of "Integrity" and "Client

First" Policy, Destimoney, with the help of over 3000 employees and a strong IT

infrastructure, provides advisory services to individuals and institutional clients in India and

abroad.

Destimoney (erstwhile Dawnay Day AV) is an innovative financial services provider and

advisory firm, formed in the year 2006 as a subsidiary of Dawnay Day UK. In mid 2008,

NSR (New Silk Route) had acquired 100% stake in the business.

The Destimoney Group at present has 4 business lines; Destimoney India Services Pvt Ltd,

which provides portfolio management services; Destimoney Enterprises Pvt Ltd, which

provides financial advisory services and distributes insurance products, loans, fixed deposits,

mutual funds, structured products; Destimoney Securities Pvt Ltd., which deals with broking

of stocks & shares; Decimal Point Analytics, which is into global research outsourcing

businesses.

Our vision is to build a world class customer centric financial services enterprise that fulfils

the financial needs of “Middle India” with “Global Processes” and focuses on profitable

growth. We plan to do this, by distributing all financial products and manufacturing a select

few and building an organization that unlocks the potential across four dimensions, viz.

individual, team, customer and market place

In providing services to our clients, we take the fiduciary trust they place in us very seriously.

By strictly adhering to our core values, we ensure that our processes, risk management

systems, and staffing are concentrated solely on preserving and ncreasing our clients’ hard

earned capital within a transparent and controlled investment process.

About Destimoney Group

A rapidly growing retail financial services company with a pan India presence, which offers a wide range of financial products to the customer – Loans, Insurance, retail broking, Mutual funds and other third party financial products.Also holds 49% strategic stake in PNB Housing finance.

Sub-brokingProduct offering – commodities, currencies, margin financeStrategic partnership with Dhanlaxmi Bank & consortiumDedicated tele sales channel for distributing Insurance

Multi format sales channels to distribute loans

Broking

Distribution

Housing

Finance / LAP

Covering 17+ cities

Retail Assets

Enhance customer value proposition by real estate and loan advisoryBest Productivity

49% stake in PNBHF with significant management oversight

1.2

SERVICES PROVIDED BY THE ORGANIZATION

1.3 KEY MANAGEMENT

1.Sudip Bandyopadhyay

MD & CEO

A Chartered Accountant by profession, he has over 23 years of experience in the financial

sector in the areas of capital market, money market and currency market operations.He

has worked with reputed organizations like HLL, ITC & Reliance Money. He created &

led Reliance Money, the largest retail broking and distribution company during his stint in

Reliance as MD & CEO. Sudip was also responsible for the acquisition of AMP Sanmar

that launched Reliance’s foray in the Life Insurance segment.

2.Jhuma Guha

President

A Chartered Accountant and a Company Secretary with over 18 years of experience in the

Finance, Legal, Compliance, Risk, M&A and General Management domains.Worked with

companies such as ITC and Reliance Money.

3.K Giri

Chief Finance Officer

Former Country Controller - Nestle (Uzbekistan) and Group CFO for Destimoney

Enterprises for more than 3 years.

4.Gurmeet Singh

Head of Broking

Over 12 years experience in Product Management & Business Development.Has worked in

start-up teams of leading organisations such as Baazee.com (now eBay), ICICI Direct,

Reliance Money & NSEL.

5.Anand Maliwal

Chief Technology Officer

Anand Maliwal, is an Engineer and an MBA. He has over a decade of experience in

technology and operations, across a wide spectrum of banking & financial services

companies in India, Japan & UK, including Networth Stock Broking, India Infoline and

Cognizant Technology Solutions.

6.Sunando Guha

Chief Human Resources Officer

A Chartered Accountant with an accumulated experience of 20 years in the manufacturing

sector and financial services in India and abroad, which includes stints with organisations like

Tata Tea , Philips, Ceat, Wall Street Finance and HSBC Holdings plc.

7.Zahid Gawandi

Chief Marketing Officer

An MBA in Marketing from Mumbai University, he has over 16 years of experience in

Marketing & Brand management. Having worked for Advertising Agencies like Dentsu,

Percept & Corporates like Reliance Money & Spice Group, he has successfully handled high

profile MNC & Indian brands, winning accolades for excellence in formulating and

executing inventive brand communication strategies.He was also instrumental in launching

the Reliance Money brand in India.

8.Sanjay Nayak

Head of Operation

Sanjay Nayak is a Post Graduate in commerce from Mumbai University. He has an

experience of two decades in the Industry In Operations. Has worked `with J.M. Share and

Stock Brokers (currently known as J.M.Financial), Prime Broking Services, SG Asia

Securities. Previous tenure was with India Infoline Limited for eight years as Head of

Operations. He has a complete proficiency with the entire gamut of Broking Operations

including Institution Broking, Retail Broking, Settlements, Fund Accounting, Depository

Operations, Wealth Management and PMS Operations.

9.Anirudh Jain

Head of Distribution

Anirudh is an MBA & also an Associate Financial Planner. He has detailed knowledge and

understanding of Insurance and Investment space in India for the last 10 years. Prior to

joining Destimoney, he was associated with the Banking sector having worked for reputed

organizations like HDFC Bank & India Bulls where he was instrumental in spearheading the

Bancassurance Business looking after Life & General Insurance Business across all the

verticals. His go-to-market strategies helped in successful market penetration and product

launches for various customer segments. Anirudh has displayed leadership skills in managing

consistent branch performances Pan-India & develop strategies and action plans to win new

business & revenue streams.

10.Prashant Bansal

Head of Wealth Management

Prashant has more than 15 years of experience behind him in the areas of Private Banking,

Product Management and Sales Strategy. Prior to joining Destimoney he worked with

American Express, Standard Chartered

1.4 BUSINESS NETWORK AND SOURCE OF FINANCE

FUNDING PARTNER – NEW SILK ROUTE

New Silk Route is a leading Asia-focused growth capital firm founded in 2006 with over $1.4

billion under management, focused on the Indian subcontinent, as well as other rapidly

growing economies in Asia and the Middle East.

NSR have made 9 Investments to date in sectors of Consumer Services, Telecom,

Manufacturing, Financial Services and Infrastructure. They have a team of 16 Investment

Professionals working out of 4 offices; New York, Mumbai, Dubai, and Bangalore

FINANCIAL SERVICE DOMAIN

Destimoney is one of India’s leading retail financial services and distribution companies, a

world-class customer-centric services enterprise that fulfils the financial needs of ‘Middle

India, with global processes and a focus on profitable growth.

Destimoney distributes all financial products, and manufactures a select few. They develop

individually structured financial products for their customers - from universal real life needs

for family, security, health assurance and education to wealth creation and home ownership;

on to lifestyle and business requirements, and continuing along the road to retirement and

estate planning,

ALLINANCES & PARTNERSHIPS

Strategic partnership with PNB to acquire up to a 49% stake in its housing finance

subsidiary.

Destimoney recently entered into a partnership with Dhanlaxmi Bank to enable the

Bank’s customers to trade on Destimoney’s online e-broking platform.

Under the new partnership with Artha Money, Artha money’s customers will be able to

seamlessly access and use Destimoney’s online equity trading platform, while

Destimoney’s customers will be able to use Artha Money’s online commodity trading

platform.

DESTIMONEY GROUP

The Destimoney Group at present has 4 business lines;

Destimoney India Services Pvt. Ltd, which provides portfolio management services.

Destimoney Enterprises Pvt. Ltd, which provides financial advisory services and

distributes

o Insurance products

Bajaj Allianz Life Insurance.

Royal Sundram Health Cover.

o Loans

Personal loans.

Home loans (In partnership with Punjab National Bank.)

LAP (Loan against property).

o Fixed deposits, mutual funds, structured products.

Destimoney Securities Pvt. Ltd., which deals with broking of stocks & shares.

Decimal Point Analytics, which is into global research outsourcing businesses.

1.5 MISSION & VISION

VISION

Destimoney vision is to build a world class customer centric financial services enterprise that

fulfils the financial needs of “Middle India” with “Global Processes” and focuses on

profitable growth. Destimoney plans to do this, by distributing all financial products and

manufacturing a select few and building an organization that unlocks the potential across four

dimensions, viz. individual, team, customer and market place.

MISSION

Organization’s mission is to forge strong, sustained relationships with the clients by creating

value for them within a transparent and controlled investment process. 

1.6 SWOT ANALYSIS

STRENGTHS

Destimoney Enterprises Pvt. Ltd. is a leading financial service provider under Asia’s

leading non financial organization “New silk Route” with Strategic partnership with

PNB to acquire up to a 49% stake in its housing finance subsidiary.

Destimoney recently entered into a partnership with Dhanlaxmi Bank to enable the

Bank’s customers to trade on Destimoney’s online e-broking platform.

Under the new partnership with Artha Money, Artha money’s customers will be able

to seamlessly access and use Destimoney’s online equity trading platform, while

Destimoney’s customers will be able to use Artha Money’s online commodity trading

platform.

Destimoney’s product mix comprises established and renowned companies for

investments like Bajaj Allianz, Royal Sundram etc.

Destimoney’s biggest strength is in its efficiency in sale and advisory of financial

investment instruments.

WEAKNESSE

Destimoney is very new brand for investors in the market. So it is struggling to make

its name in the market due to intense completion.

Till now company hasn’t done much in terms of promotional activities to attract the

customers from the market.

Company’s online service is only for its own products like mutual funds and DMAT

accounts.

Company’s online service approach is not very effective as it does not provide any

kind of information about product and investment details accept its business domain.

Company is also struggling in acquiring new customers. The customer acquisition

rate is a bit slower as compare to its competitors.

OPPORTUNITIES

Company is concentrating on middle class investors under its “middle India” Plan.

But still there are other segments which can be targeted simultaneously.

Although company has done well in order to establish new partnerships with

financial & non financial institutions but still company may expand its domain by

involving new product series in its product mix.

Destimoney is also going to launch its own product line along with currently

available DMAT facility. So it will provide a good opportunity to the company to

promote it self not as a third party service provider but also as a leading financial

service company.

THREATS

As the company is new in the market, it is very selective in its approach whether it is

related to sale or to its partners. But due to intense competition in the market,

company is finding it difficult to establish a brand value against the companies like

India Bulls, Religare, and Standard Chartered etc.

Aggressive promotional strategies by close competitors may hamper Destimoney’s

acceptance by new clients.

The lack in technical knowledge about the products & instruments among sales staff

is not a cost effective venture for the company.

1.7 DISTRIBUTION STRUCTURE

1.8FINANCIAL STATEMENT AND TREND ANALYSIS OF THE

COMPANY

(a)Ratios:-

Praticulars

Mar

'11

Mar

'10

Mar

'09

Mar

'08

Mar

'07

Liquidity Ratios

Current Ratio 2.05 1.37 1.58 1.1 1.37

Quick Ratio 2.06 1.68 1.54 1.04 1.31

Operating Ratios

Operating Profit Per

Share (Rs) 5.27 4.75 5.52 5.23 4.61

Net Operating Profit

Per Share (Rs) 8.37 7.42 7.62 7.11 6.71

Leverage Ratios        

Interest Cover 2.1 1.59 1.72 1.81 2.23

Total Debt to

Owners Fund 0.07 0.13 0.06 0.11 0.12

Financial Charges

Coverage Ratio 2.12 1.61 1.71 1.81 2.24

Financial Charges

Coverage Ratio Post

Tax 1.99 1.58 1.58 1.71 2.06

Profitability Ratios        

Operating Profit 62.93 63.99 72.5 73.47 68.65

Margin(%)

Gross Profit

Margin(%) 62.03 62.84 71.66 72.68 67.84

Cash Profit

Margin(%) 29.84 23.29 25.94 30.75 33.91

Net Profit

Margin(%) 28.88 22.04 25.11 30.01 33.16

Return On Capital

Employed(%) 7.46 7.63 11.39 16.68 13.3

Return On Net

Worth(%) 4.28 3.01 4.7 7.14 6.97

Return on Long

Term Funds(%) 9.04 8.35 13.45 16.94 13.5

(b) Trend Analysis

------------------- in Rs. Cr. ------------------

Praticulars

Mar

'11

Mar

'10

Mar

'09

Mar

'08

Mar

'07

Sales Turnover 5.73 4.6 4.72 4.06 3.83

Net Profit 13.06 13.27 8.58 13.82 8.87

Earnings Per Share 2.47 1.66 2.18 2.64 2.43

ANALYSIS OF THE COMPANY

As company has wide scope to grow as compare to its competitor in the market. Company

its current asset is 2.05 in 2011 which is counted as a good company and its Profitability

Ratio continuous increase and leverage ratio is consant. Sale Turnover

is also increase as compare to its previous year as on 2011 it is 5.73 as compare to its

previous year which is 4.6.Net profit is also stable as on 2011 its net profit is

Rs.13.06crore.Earning per share of the company also increase as on 2011 it is 2.47 which is

sufficient and as compare to its previous 3year it is highest.

1.9 CONCLUSION

As the financial markets are going towards development with the pace of economic growth,

the post-recession market expects a lot from the investors. In this regard it can be seen that

there is a huge scope for the companies providing financial services in coming days. So, the

opportunity to gain more and create a brand equity is there and it is not too hard for a market

player like Destimoney to achieve such. A mare sophistication and improvement in services

can pay much.

CHAPTER – 2

INTRODUCTION AND RESEARCH METHODOLOGY

2.1 INTRODUCTION

Money is honey for modern man!! In this modern and fast changing world where a cut-throat

competition exits it is treated as the essence of life. It has become the sole purpose of every

human activity. It is the sole target of every start. Starting from the unsunshine lower levels

of deep blue Pacific to the upper layers of Troposphere each and every component is money

oriented now a days. To fulfil such need of money and wealth, modern man uses investment

as a want satisfying and wealth maximizing tool.

Taking investment decisions has become a part of our economic life. Everybody makes such

decisions in different contexts at different times. The appropriateness of such decisions

makes someone Warren Buffet where as some become bankrupts. Therefore, it is very

important to understand and know the right way to take sound investment decisions which

can be made in order to improve the chance of making profits through them.

As investment is concerned, the stock market is treated as the most profitable and efficient

battle field. It gives a scope to earn extra ordinary income by taking high level of risk where

uncertainty exists always. So it is not a game of a child to find the right time and right choice

to invest in. Investment decision-making in such situation can best be viewed as an integrated

process to which security analysis makes its unique contribution. And, in the process of

security analysis, Technical Analysis is treated as the Polestar which shows the direction to

proceed.

Technical Analysis serves the investment decision-maker by pointing the direction that is

most likely to produce the desired results and to meet the expectations of the investors.

Whether Technical analysis will ever be classified as a science is doubtful, but research,

training and experience have developed it into a discipline, which means a structured,

consistent and orderly process without rigidity in either concepts or methods.

2.2 RESEARCH METHODOLOGY

2.2.1 NEED FOR THE STUDY

Where the herds of bulls and beers are peeping to the stock market in an expectation to grab

the opportunity to take the advantage of volatility, a study on Technical Analysis is very

much needed to cope with the moment-change market fluctuations in the expected direction

to earn desired profits. This research study fulfils the needs of the speculators, investors and

students to acquire knowledge regarding various technical aspects of investing the most

liquid and hard-earned money not only in profitable stocks, but also at the right time and at

the right price. The thesis describes the various trends and chart patterns which are very much

helpful to find the timing of investment at different market situations.

This study contributes to the knowledge of Stock analysis through integration of the review

of literature and methodology developed for the understanding and resolution of various

related indicators and techniques regarding investment decision-making in stock market, and

empirical work done there on.

The purpose of the summer project report is to allow the study within a coherent, organized

and standardized framework which is necessary to enhance understanding to grasp

knowledge and to clarify the subject matter. It is needed for the direction and procedure of

the study to bring it up to the required scope, coverage, rigor and also to enhance the quality

of research effort.

2.2.2 OBJECTIVES OF THE STUDY

This project was started with an objective to know the basic tools, trends and chart patterns of

Technical Analysis and their implications at the time of investment decision-making. How

investors can gain more out of their investment by using the tools of Technical Analysis is

the central objective of this research study. Collecting information regarding investors’

response and belief towards Technical Analysis is also an additional objective that forced to

undertake such research study.

2.2.3 SOURCES OF DATA

This section of the project emphasizes on the procedure used to accomplish the project. For

this purpose some data have been collected basically from two sources:

Primary Source

Secondary Source

Primary Source

The data collected from primary sources are raw-data. These are the data that are collected

first-hand and have not had any previous meaningful interpretation. The primary data will be

collected through observation, questionnaire and through well-tested personal interviews with

the investors at the door of number of broking houses.

Secondary Source

Any data used that have been collected earlier for some other purposes are known as

Secondary Data. The secondary data has been collected such from various internet portals,

research articles, reference books and various T.V. programmes related to the topic.

2.2.4 RESEARCH DESIGN

The present research study will adopt Descriptive Research Design for properly designing the

research work. Through this, the topic will be studied thoroughly and it will be presented by

giving necessary findings and conclusions.

2.2.5 SAMPLING METHOD

The method adopted is Convenient Sampling method because it was necessary to cover all

types of investors and at different places all over the city, even if by taking the help of cell

phone.

2.2.6 SAMPLE SIZE

The total sample size was 200 and included small investors, speculators, businessmen,

research scholars and finance students. The interview was conducted inside the city of Delhi,

Jammu and Chandigarh only.

2.2.7 LIMITATIONS OF THE STUDY

Although necessary precautions have taken, still this study suffers from the following

limitations:

The study consists of detailed theoretical explanations.

The time period allowed for the study was quite insufficient to cover and analyse all the

technical aspects and to compare it with the behaviour of the stock market.

More importance has been given to the subject matter of Technical Analysis only.

The wide range of chart-patterns and trends may create confusion while going through

these.

The study may act as a magic-pedia for a layman having no basic knowledge regarding

securities market.

Confidentiality of information was the biggest limitation that corporate people and

investors were not willing to share.

The primary limitation of the study is that, the survey is limited within the city of

Bhubaneswar only.

2.2.8 CHAPTER PLAN

The study has been divided in to two parts such as the Theoretical aspect and the Practical

aspect. The first part contains a wide explanation of the theories of Fundamental and

Technical analysis where as the second part is enriched with the response of the investors’

and their beliefs with respect to Technical Analysis. By looking chapter-wise, Chapter-1

opens the door to enter in to the subject. Chapter-1 gives information about the company

under which the summer internship has been made. Chapter-3 gives a broad idea regarding

Fundamental Analysis. Chapter-4 gives a broad idea regarding Technical Analysis. It narrates

about the tools available in Technical Analysis and explains the various indicators that

signals investor-action and guides to expect the future uncertain market condition. Chapter-5

analyses the data that has been collected from primary sources reflecting the role of technical

charts and trends at the time of investment decision-making. It gives an idea regarding the

applicability and popularity of Technical Analysis in investor-world. It depicts the response

of the investors. And, lastly the study comes to an end with chapter-6 that narrates the

Conclusion and suggestions extracted from this study with conclusion.

CHAPTER – 3

FUNDAMENTAL ANALYSIS

3.1 MEANING OF FUNDAMENTAL ANALYSIS

Fundamental analysis is the study of economic, industry, and company conditions in an effort

to determine the value of a company's stock. Fundamental analysis typically focuses on key

statistics in a company's financial statements to determine if the stock price is correctly

valued.

I realize that some people will find a discussion on fundamental analysis within a book on

technical analysis peculiar, but the two theories are not as different as many people believe. It

is quite popular to apply technical analysis to charts of fundamental data, for example, to

compare trends in interest rates with changes in security prices. It is also popular to use

fundamental analysis to select securities and then use technical analysis to time individual

trades. Even diehard technicians can benefit from an understanding of fundamental analysis

(and vice versa).

Fundamental analysis of a business involves analyzing its financial statements and health, its

management and competitive advantages, and its competitors and markets. When applied

to futures and forex, it focuses on the overall state of the economy, interest rates, production,

earnings, and management. When analyzing a stock, futures contract, or currency using

fundamental analysis there are two basic approaches one can use; bottom up analysis and top

down analysis.[1] The term is used to distinguish such analysis from other types of investment

analysis, such as quantitative analysis and technical analysis.

Fundamental analysis is performed on historical and present data, but with the goal of

making financial forecasts. There are several possible objectives:

to conduct a company stock valuation and predict its probable price evolution,

to make a projection on its business performance,

to evaluate its management and make internal business decisions,

to calculate its credit risk.

3.2 TWO ANALYTICAL MODELS

When the objective of the analysis is to determine what stock to buy and at what price, there

are two basic methodologies

1. Fundamental analysis maintains that markets may misprice a security in the short run

but that the "correct" price will eventually be reached. Profits can be made by

purchasing the mispriced security and then waiting for the market to recognize its

"mistake" and reprice the security.

2. Technical analysis  maintains that all information is reflected already in the stock price.

Trends 'are your friend' and sentiment changes predate and predict trend changes.

Investors' emotional responses to price movements lead to recognizable price chart

patterns. Technical analysis does not care what the 'value' of a stock is. Their price

predictions are only extrapolations from historical price patterns.

Investors can use any or all of these different but somewhat complementary methods for

stock picking. For example many fundamental investors use technicals for deciding entry and

exit points. Many technical investors use fundamentals to limit their universe of possible

stock to 'good' companies.

The choice of stock analysis is determined by the investor's belief in the different paradigms

for "how the stock market works". See the discussions at efficient-market hypothesis, random

walk hypothesis, capital asset pricing model, Fed model Theory of Equity Valuation, Market-

based valuation, and Behavioral finance.

3.3 INTERPRETATION

Fundamental analysis includes:

1.Economic analysis

2.Industry analysis

3.Company analysis

3.3.1 ECONOMIC ANALYSIS

The economy is studied to determine if overall conditions are good for the stock market. Is

inflation a concern? Are interest rates likely to rise or fall? Are consumers spending? Is the

trade balance favorable? Is the money supply expanding or contracting? These are just some

of the questions that the fundamental analyst would ask to determine if economic conditions

are right for the stock market.

A. Influence of the economy on the company.

These are the following factor: -

01. Economic Growth

02. Populations

03. Monsoons and Agriculture Production

04. Natural resources and availability of raw material

05. Industrial Productions

06. Inflation

07. Interest rate

08. Foreign exchange reserve

09. Balance of payment position

10. Budget deficits

11. Public debt and foreign debt

12. Domestic saving and capital output rate

13. Employments

14. Taxation policies

15. Infrastructure facilities

16. Government policies

17. Political Stability

18. International developments

19. Capital formations

20. Saving pattern

21. Economic indicators

22. Foreign direct investments

23. Rupee-Dollar Fluctuation

24. Stock News

• Depression: At this stage demand is low and declining inflation often high and so are

interest rate, companies usually reduce activities and securities performance is poor.

• Recovery: Economy begin to revive after depression, demand pick up leading,

production and activities increase.

• Boom: High demand with high investment and production, companies earn more profit

• Recession: Companies slowly begins downturn in demand, production and

employment, profits are also decline.

3.3.2 INDUSTRY ANALYSIS

The company's industry obviously influences the outlook for the company. Even the best

stocks can post mediocre returns if they are in an industry that is struggling. It is often said

that a weak stock in a strong industry is preferable to a strong stock in a weak industry.

The industry analysis should take in to account the following factors as influence the

performance of the company, whose share prices are to be analyzed.

Product Line.

It is also necessary to know the industries with a high growth potential like computers,

electronics, chemicals, diamonds, textiles etc. and whether the industry is in the priority

sector of the key industry group of capital goods or consumers goods group.

Raw Material and Inputs.

Under these head, we have to look in to industries depending on imports of scare raw

materials, competition from other companies and industries and the barriers to entry of new

company, protection from foreign competition, import and export restriction etc.

Capacity Installed and Utilized.

The demand for industrial product in the economy is estimated by the planning

commission and the Government, and the units are given licensed capacity on the basis of

these estimates.

Industry Characteristics.

It included whether the industry is cyclical, fluctuating of stable. It is also important

industry produce seasonal product or FMCG. It also included demand of product freight

charges, cost of production, advertisement cost, skill of operation, profitability.

Demand and Market.

It includes demand of the product in the market and price of raw material and other input

cost like freight, electricity, season, monsoon, etc. if the nature of product is such as drugs,

fertilizer or other consumer goods, whose price and distribution control by Government.

Government Policy with regard to Industry

Government Policy is announced in the industrial policy resolution and Subsequent

announcement from time to time by the Government. The Policy strategy as laid down

in the five years plans according to planning commission and expected demand in the

economy.

3.3.3 COMPANY ANALYSIS

After determining the economic and industry conditions, the company itself is analyzed to

determine its financial health. This is usually done by studying the company's financial

statements. From these statements a number of useful ratios can be calculated. The ratios fall

under five main categories: profitability, price, liquidity, leverage, and efficiency. When

performing ratio analysis on a company, the ratios should be compared to other companies

within the same or similar industry to get a feel for what is considered "normal." At least one

popular ratio from each category is shown below.

At the final stage of fundamental analysis, the investor analyses the company. This analysis

has two thrusts:

1. How has the company performed vis-a-vis other similar companies? and

2. How has the company performed in comparison to earlier years

It is imperative that one completes the economic analysis and the industry analysis before a

company is analysed because the company’s performance at a period of time is to an extent a

reflection of the economy, the political situation and the industry.

What does one look at when analysing a company? There is no point or issue too small to

beignored. Everything matters.

The different issues regarding a company that should be examined are:

1. The Management

2. The Company

3. The Annual Report

4. Cash flow

5. Ratios

Net Profit Margin. A company's net profit margin is a profitability ratio calculated by

dividing net income by total sales. This ratio indicates how much profit the company is able

to squeeze out of each Rupee of sales. For example, a net profit margin of 30%, indicates that

Rs.0.30 of every Rs.1.00 in sales is realized in profits.

P/E Ratio. The P/E ratio (i.e., Price/Earnings ratio) is a price ratio calculated by dividing the

security's current stock price by the previous four quarter's earnings per share (EPS).

The P/E Ratio shows how much an investor must pay to "buy" Rs.1 of the company's

earnings. For example, if a stock's current price is Rs.20 and the EPS for the last four quarters

was Rs.2, the P/E ratio is 10 (i.e., Rs.20 / Rs.2 = 10). This means that you must pay Rs.10 to

"buy" Rs.1 of the company's earnings. Of course, investor expectations of company's future

performance play a heavy role in determining a company's current P/E ratio.

A common approach is to compare the P/E ratio of companies within the same industry. All

else being equal, the company with the lower P/E ratio is the better value.

Book Value Per Share. A company's book value is a price ratio calculated by dividing total

net assets (assets minus liabilities) by total shares outstanding. Depending on the accounting

methods used and the age of the assets, book value can be helpful in determining if a security

is overpriced or under-priced. If a security is selling at a price far below book value, it may

be an indication that the security is under-priced.

Current Ratio. A company's current ratio is a liquidity ratio calculated by dividing current

assets by current liabilities. This measures the company's ability to meet current debt

obligations. The higher the ratio the more liquid the company. For example, a current ratio of

3.0 means that the company's current assets, if liquidated, would be sufficient to pay for three

times the company's current liabilities.

Debt Ratio. A company's debt ratio is a leverage ratio calculated by dividing total liabilities

by total assets. This ratio measures the extent to which total assets have been financed with

debt. For example, a debt ratio of 40% indicates that 40% of the company's assets have been

financed with borrowed funds. Debt is a two-edged sword. During times of economic stress

or rising interest rates, companies with a high debt ratio can experience financial problems.

However, during good times, debt can enhance profitability by financing growth at a lower

cost.

Inventory Turnover. A company's inventory turnover is an efficiency ratio calculated by

dividing cost of goods sold by inventories. It reflects how effectively the company manages

its inventories by showing the number of times per year inventories are turned over

(replaced). Of course, this type of ratio is highly dependent on the industry. A grocery store

chain will have a much higher turnover than a commercial airplane manufacturer. As stated

previously, it is important to compare ratios with other companies in the same industry.

Stock Price Valuation

After determining the condition and outlook of the economy, the industry, and the company,

the fundamental analyst is prepared to determine if the company's stock is overvalued,

undervalued, or correctly valued.

Several valuation models have been developed to help determine the value of a stock. These

include dividend models which focus on the present value of expected dividends, earnings

models which focuses on the present value of expected earnings, and asset models which

focus on the value of the company's assets.

There is no doubt that fundamental factors play a major role in a stock's price. However, if

you form your price expectations based on fundamental factors, it is important that you study

the price history as well or you may end up owning an undervalued stock that remains

undervalued.

3.4 USE BY DIFFERENT PORTFOLIO STYLES

Investors may use fundamental analysis within different portfolio management styles.

Buy and hold  investors believe that latching onto good businesses allows the investor's

asset to grow with the business. Fundamental analysis lets them find 'good' companies,

so they lower their risk and probability of wipe-out.

Managers may use fundamental analysis to correctly value 'good' and 'bad' companies.

Eventually 'bad' companies' stock goes up and down, creating opportunities for profits.

Managers may also consider the economic cycle in determining whether conditions are

'right' to buy fundamentally suitable companies.

Contrarian  investors distinguish "in the short run, the market is a voting machine, not a

weighing machine".[2] Fundamental analysis allows you to make your own decision on

value, and ignore the market.

Value investors  restrict their attention to under-valued companies, believing that 'it's

hard to fall out of a ditch'. The value comes from fundamental analysis.

Managers may use fundamental analysis to determine future growth rates for buying

high priced growth stocks.

Managers may also include fundamental factors along with technical factors into

computer models (quantitative analysis).

3.5 TOP-DOWN AND BOTTOM-UP

Investors can use either a top-down or bottom-up approach.

The top-down investor starts his analysis with global economics, including both

international and national economic indicators, such as GDP growth

rates, inflation, interest rates, exchange rates, productivity, and energy prices. He

narrows his search down to regional/industry analysis of total sales, price levels, the

effects of competing products, foreign competition, and entry or exit from the

industry. Only then he narrows his search to the best business in that area.

The bottom-up investor starts with specific businesses, regardless of their

industry/region.

3.6 PROCEDURES

The analysis of a business' health starts with financial statement analysis that includes ratios.

It looks at dividends paid, operating cash flow, new equity issues and capital financing. The

earnings estimates and growth rate projections published widely by Thomson Reuters and

others can be considered either 'fundamental' (they are facts) or 'technical' (they are investor

sentiment) based on your perception of their validity.

The determined growth rates (of income and cash) and risk levels (to determine the discount

rate) are used in various valuation models. The foremost is the discounted cash flow model,

which calculates the present value of the future

dividends  received by the investor, along with the eventual sale price. (Gordon model)

earnings of the company, or

cash flows  of the company.

The amount of debt is also a major consideration in determining a company's health. It can be

quickly assessed using the debt to equity ratio and the current ratio (current assets/current

liabilities).

The simple model commonly used is the Price/Earnings ratio. Implicit in this model of a

perpetual annuity (Time value of money) is that the 'flip' of the P/E is the discount rate

appropriate to the risk of the business. The multiple accepted is adjusted for expected growth

(that is not built into the model).

Growth estimates are incorporated into the PEG ratio, but the math does not hold up to

analysis. Its validity depends on the length of time you think the growth will continue. IGAR

models can be used to impute expected changes in growth from current P/E and historical

growth rates for the stocks relative to a comparison index.

Computer modelling of stock prices has now replaced much of the subjective interpretation

of fundamental data (along with technical data) in the industry. Since about year 2000, with

the power of computers to crunch vast quantities of data, a new career has been invented. At

some funds (called Quant Funds) the manager's decisions have been replaced by proprietary

mathematical models.

3.7 CONCLUSIONS

Fundamental analysis can be valuable, but it should be approached with caution. If you are

reading research written by a sell-side analyst, it is important to be familiar with the analyst

behind the report. We all have personal biases, and every analyst has some sort of bias. There

is nothing wrong with this, and the research can still be of great value. Learn what the ratings

mean and the track record of an analyst before jumping off the deep end. Corporate

statements and press releases offer good information, but they should be read with a healthy

degree of skepticism to separate the facts from the spin. Press releases don't happen by

accident; they are an important PR tool for companies. Investors should become skilled

readers to weed out the important information and ignore the hype.ignore the hype.

CHAPTER – 4

TECHNICAL ANALYSIS

4.1 MEANING OF TECHNICAL ANALYSIS

Technical analysis is a security analysis technique that claims the ability to forecast the

future direction of prices through the study of past market data, primarily price and volume.

In its purest form, technical analysis considers only the actual price and volume behaviour of

the market or instrument. Technical analysts, sometimes called "chartists", may employ

models and trading rules based on price and volume transformations, such as the relative

strength index, moving averages, regressions, inter-market and intra-market price

correlations, cycles or, classically, through recognition of chart patterns.

Technical analysis stands in distinction to fundamental analysis. Technical analysis "ignores"

the actual nature of the company, market, currency or commodity and is based solely on "the

charts," that is to say price and volume information, whereas fundamental analysis does look

at the actual facts of the company, market, currency or commodity. For example, any large

brokerage, trading group, or financial institution will typically have both a technical analysis

and fundamental analysis team.

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.

4.2 ASSUMPTIONS OF TECHNICAL ANALYSIS

Technical Analysis is based on certain assumptions. It does not matter whether the

assumptions are reflected in actual practice or not, investors take those in to consideration

while taking investment decisions and analyzing technical indicators. These basic

assumptions are:

1. The Market Discounts Everything

A major criticism of technical analysis is that it only considers price movement, ignoring the

fundamental factors of the company. However, technical analysis assumes that, at any given

time, a stock's price reflects everything that has or could affect the company - including

fundamental factors. Technical analysts believe that the company's fundamentals, along with

broader economic factors and market psychology, are all priced into the stock, removing the

need to actually consider these factors separately. This only leaves the analysis of price

movement, which technical theory views as a product of the supply and demand for a

particular stock in the market.

2. Price Moves in Trends

In technical analysis, price movements are believed to follow trends. This means that after a

trend has been established, the future price movement is more likely to be in the same

direction as the trend than to be against it. Most technical trading strategies are based on this

assumption.

3. History Tends To Repeat Itself

Another important idea in technical analysis is that history tends to repeat itself, mainly in

terms of price movement. The repetitive nature of price movements is attributed to market

psychology; in other words, market participants tend to provide a consistent reaction to

similar market stimuli over time. Technical analysis uses chart patterns to analyze market

movements and understand trends. Although many of these charts have been used for more

than 100 years, they are still believed to be relevant because they illustrate patterns in price

movements that often repeat themselves.

4. Not Just for Stocks

Technical analysis can be used on any security with historical trading data. This includes

stocks, futures and commodities, fixed-income securities, forex, etc. In this report, we'll

usually analyze stocks in our examples, but keep in mind that these concepts can be applied

to any type of security. In fact, technical analysis is more frequently associated with

commodities and forex, where the participants are predominantly traders.

4.3 TECHNICAL ANALYSIS & FUNDAMENTAL ANALYSIS

Technical analysis and fundamental analysis are the two main schools of thought in the

financial markets. As we've mentioned, technical analysis looks at the price movement of a

security and uses this data to predict its future price movements. Fundamental analysis, on

the other hand, looks at economic factors, known as fundamentals. Let's get into the details of

how these two approaches differ, the criticisms against technical analysis and how technical

and fundamental analysis can be used together to analyze securities.

The Differences

1. Charts vs. Financial Statements

At the most basic level, a technical analyst approaches a security from the charts, while a

fundamental analyst starts with the financial statements. By looking at the balance sheet, cash

flow statement and income statement, a fundamental analyst tries to determine a company's

value. In financial terms, an analyst attempts to measure a company's intrinsic value. In this

approach, investment decisions are fairly easy to make - if the price of a stock trades below

its intrinsic value, it's a good investment. Although this is an oversimplification (fundamental

analysis goes beyond just the financial statements).

Technical traders, on the other hand, believe there is no reason to analyze a company's

fundamentals because these are all accounted for in the stock's price. Technicians believe that

all the information they need about a stock can be found in its charts.

2. Time Horizon

Fundamental analysis takes a relatively long-term approach to analyzing the market

compared to technical analysis. While technical analysis can be used on a timeframe of

weeks, days or even minutes, fundamental analysis often looks at data over a number of

years.

The different timeframes that these two approaches use is a result of the nature of the

investing style to which they each adhere. It can take a long time for a company's value to be

reflected in the market, so when a fundamental analyst estimates intrinsic value, a gain is not

realized until the stock's market price rises to its "correct" value. This type of investing is

called value investing and assumes that the short-term market is wrong, but that the price of a

particular stock will correct itself over the long run. This "long run" can represent a

timeframe of as long as several years, in some cases.

Furthermore, the numbers that a fundamentalist analyzes are only released over long periods

of time. Financial statements are filed quarterly and changes in earnings per share don't

emerge on a daily basis like price and volume information. Also remember that fundamentals

are the actual characteristics of a business. New management can't implement sweeping

changes overnight and it takes time to create new products, marketing campaigns, supply

chains, etc. Part of the reason that fundamental analysts use a long-term timeframe, therefore,

is because the data they use to analyze a stock is generated much more slowly than the price

and volume data used by technical analysts.

3. Trading Versus Investing

Not only is technical analysis more short term in nature that fundamental analysis, but the

goals of a purchase (or sale) of a stock are usually different for each approach. In general,

technical analysis is used for a trade, whereas fundamental analysis is used to make an

investment. Investors buy assets they believe can increase in value, while traders buy assets

they believe they can sell to somebody else at a greater price. The line between a trade and an

investment can be blurry, but it does characterize a difference between the two schools.

4.4 THE CRITICS OF TECHNICAL ANALYSIS

Some critics see technical analysis as a form of black magic. Don't be surprised to see them

question the validity of the discipline to the point where they mock its supporters. In fact,

technical analysis has only recently begun to enjoy some mainstream credibility. While most

analysts on Wall Street focus on the fundamental side, just about any major brokerage now

employs technical analysts as well.

Much of the criticism of technical analysis has its roots in academic theory - specifically the

efficient market hypothesis (EMH). This theory says that the market's price is always the

correct one - any past trading information is already reflected in the price of the stock and,

therefore, any analysis to find undervalued securities is useless.

There are three versions of EMH. In the first, called weak form efficiency, all past price

information is already included in the current price. According to weak form efficiency,

technical analysis can't predict future movements because all past information has already

been accounted for and, therefore, analyzing the stock’s past price movements will provide

no insight into its future movements. In the second, semi-strong form efficiency, fundamental

analysis is also claimed to be of little use in finding investment opportunities. The third is

strong form efficiency, which states that all information in the market is accounted for in a

stock's price and neither technical nor fundamental can provide investors with an edge. The

vast majority of academics believe in at least the weak version of EMH, therefore, from their

point of view, if technical analysis works, market efficiency will be called into question.

4.5 CO-EXISTENCE OF TECHNICAL ANALYSIS &FUNDAMENTAL

ANALYSIS

Although technical analysis and fundamental analysis are seen by many as polar opposites -

the oil and water of investing - many market participants have experienced great success by

combining the two. For example, some fundamental analysts use technical analysis

techniques to figure out the best time to enter into an undervalued security. Oftentimes, this

situation occurs when the security is severely oversold. By timing entry into a security, the

gains on the investment can be greatly improved.

Alternatively, some technical traders might look at fundamentals to add strength to a

technical signal. For example, if a sell signal is given through technical patterns and

indicators, a technical trader might look to reaffirm his or her decision by looking at some

key fundamental data. Oftentimes, having both the fundamentals and technical’s on your side

can provide the best-case scenario for a trade.

While mixing some of the components of technical and fundamental analysis is not well

received by the most devoted groups in each school, there are certainly benefits to at least

understanding both schools of thought.

4.6 TECHNICAL TOOLS

In Technical Analysis, there are a lot of tools and strategies that enable us to draw necessary

conclusions at the time of taking important decisions. Some of the most applicable and

appreciated tools are discussed below:

4.6.8 SUPPORT AND REGISTANCE

A support level is a price level where the price tends to find support as it is going down. This

means the price is more likely to "bounce" off this level rather than break through it.

However, once the price has passed this level, by an amount exceeding some noise, it is

likely to continue dropping until it finds another support level.

A resistance level is the opposite of a support level. It is where the price tends to find

resistance as it is going up. This means the price is more likely to "bounce" off this level

rather than break through it. However, once the price has passed this level, by an amount

exceeding some noise, it is likely that it will continue rising until it finds another resistance

level.

Once you understand the concept of a trend, the next major concept is that of support and

resistance. You'll often hear technical analysts talk about the ongoing battle between the bulls

and the bears, or the struggle between buyers (demand) and sellers (supply). This is revealed

by the prices a security seldom moves above (resistance) or below (support).

Figure No.: 4.1 Support

Source: www.metastock.com

As it can be seen in this Figure, support is the price level through which a stock or market

seldom falls (illustrated by the blue arrows). Resistance, on the other hand, is the price level

that a stock or market seldom surpasses (illustrated by the red arrows).

Why does it happen?

These support and resistance levels are seen as important in terms of market psychology and

supply and demand. Support and resistance levels are the levels at which a lot of traders are

willing to buy the stock (in the case of a support) or sell it (in the case of resistance). When

these trend lines are broken, the supply and demand and the psychology behind the stock's

movements is thought to have shifted, in which case new levels of support and resistance will

likely be established.

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. For example, if a trader identifies an

important level of resistance that has been tested several times but never broken, he or she

may decide to take profits as the security moves toward this point because it is unlikely that it

will move past this level.

Support and resistance levels both test and confirm trends and need to be monitored by

anyone who uses technical analysis. As long as the price of the share remains between these

levels of support and resistance, the trend is likely to continue. It is important to note,

however, that a break beyond a level of support or resistance does not always have to be a

reversal. For example, if prices moved above the resistance level of an up trending channel,

the trend have accelerated and 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.

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 INR 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.

Figure no.: 4. Role Reversal

Source: www.trending123.com

For example, as you can see in above, 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.

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. This is most often seen when a

stock is trading in a generally sideways manner as the price moves through successive peaks

and troughs, testing resistance and support.

4.6.9 VOLUME

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

time, usually a day. Higher volume means the security has been more active. 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.

Figure No.: 4.3 Volume of Shares

SOURCE: www.metastock.com

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. Therefore, if you are

looking at a large price movement, you should also examine the volume to see whether it

tells the same story.

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. In most chart patterns,

there are several pivotal points that are vital to what the chart is able to convey to chartists.

Basically, if the volume is not there to confirm the pivotal moments of a chart pattern, the

quality of the signal formed by the pattern is weakened.

Volume Precedes Price

Another important idea in technical analysis is that price is preceded by volume. Volume is

closely monitored by technicians and chartists to form ideas on upcoming trend reversals. If

volume is starting to decrease in an uptrend, it is usually a sign that the upward run is about

to end.

4.6.10 Random Walk Hypothesis

The random walk hypothesis is a financial theory stating that stock market prices evolve

according to a random walk and thus the prices of the stock market cannot be predicted. It

has been described as 'jibing' with the efficient market hypothesis. Economists have

historically accepted the random walk hypothesis. They have run several tests and continue to

believe that stock prices are completely random because of the efficiency of the market.

4.7.11 Technical 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 general direction in which

a security or market is headed. 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.

There are three types of trends as:

Up-Trend

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

upward trend.

Downtrend

It describes the price movement of a financial asset when the overall direction is downward.

A formal downtrend occurs when each successive peak and trough is lower than the ones

found earlier in the trend.

Figure No.: 4.4 Downtrend Of Share Price

Source: www.investopedia.com

Downtrend is the opposite of uptrend. Many traders seek to avoid downtrends because they

can drastically affect the value of any investment. A downtrend can last for minutes, days,

weeks, months or even years so identifying a downtrend early is very important. Once a

downtrend has been established (series of lower peaks) a trader should be very cautious about

entering into any new long positions.

Sideways/Horizontal Trends

It describes the horizontal price movement that occurs when the forces of supply and demand

are nearly equal. A sideways trend is often regarded as a period of consolidation before the

price continues in the direction of the previous move.

A sideways price trend is also commonly known as a "horizontal trend". Sideways trend is

generally a result of the price traveling between strong levels of support and resistance. It is

not uncommon to see a horizontal trend dominate the price action of a specific asset for a

prolonged period before starting a move higher or lower. Brief consolidation is often needed

during large price runs, as it is nearly impossible for such large price moves to sustain

themselves over the longer term.

4.6.12 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 and intermediate trends. Take a look a Figure

4 to get a sense of how these three trend lengths might look.

Figure No.:4.5 Trendlengths

Source: www.metastock.com

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.

4.6.13 Trendline

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

the market or a stock. Drawing a trendline 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.

As it can be seen in the figure, an upward trendline 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 trendline helps traders to

anticipate the point at which a stock's price will begin moving upwards again. Similarly, a

downward trendline 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.

Figure No.: 4.6 Trendline

Source: www.metastock.com

4.6.14 CHANNELS

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

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

trendline 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.

Figure no.: 4.7 Channel

Source: www.metastock.com

Figure illustrates a descending channel on a stock chart; the upper trendline has been placed

on the highs and the lower trendline 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.

4.6.15 TECHNICAL CHARTS

In technical analysis, charts are similar to the charts that you see in any business setting. A

chart is simply a graphical representation of a series of prices over a set time frame. For

example, a chart may show a stock's price movement over a one-year period, where each

point on the graph represents the closing price for each day the stock is traded:

Figure No.: 4.8 A Sample Chart

Source: www.stockcharts.com

The above figure provides an example of a basic chart. It is a representation of the price

movements of a stock over a 1.5 year period. The bottom of the graph, running horizontally

(x-axis), is the date or time scale. On the right hand side, running vertically (y-axis), the price

of the security is shown. By looking at the graph we see that in October 2011 (Point 1), the

price of this stock was around INR 245, whereas in June 2012 (Point 2), the stock's price is

around INR 265. This tells us that the stock has risen between October 2011 and June 2012.

4.6.15.1 CHART PROPERTIES

There are several things that you should be aware of when looking at a chart, as these factors

can affect the information that is provided. They include the time scale, the price scale and

the price point properties used.

1. The Time Scale

The time scale refers to the range of dates at the bottom of the chart, which can vary from

decades to seconds. The most frequently used time scales are intraday, daily, weekly,

monthly, quarterly and annually. The shorter the time frame, the more detailed the chart.

Each data point can represent the closing price of the period or show the open, the high, the

low and the close depending on the chart used.

Intraday charts plot price movement within the period of one day. This means that the time

scale could be as short as five minutes or could cover the whole trading day from the opening

bell to the closing bell.

Daily charts are comprised of a series of price movements in which each price point on the

chart is a full day’s trading condensed into one point. Again, each point on the graph can be

simply the closing price or can entail the open, high, low and close for the stock over the day.

These data points are spread out over weekly, monthly and even yearly time scales to monitor

both short-term and intermediate trends in price movement.

Weekly, monthly, quarterly and yearly charts are used to analyze longer term trends in the

movement of a stock's price. Each data point in these graphs will be a condensed version of

what happened over the specified period. So for a weekly chart, each data point will be a

representation of the price movement of the week. For example, if you are looking at a chart

of weekly data spread over a five-year period and each data point is the closing price for the

week, the price that is plotted will be the closing price on the last trading day of the week,

which is usually a Friday.

2. The Price Scale and Price Point Properties

The price scale is on the right-hand side of the chart. It shows a stock's current price and

compares it to past data points. This may seem like a simple concept in that the price scale

goes from lower prices to higher prices as you move along the scale from the bottom to the

top. The problem, however, is in the structure of the scale itself. A scale can either be

constructed in a linear (arithmetic) or logarithmic way, and both of these options are

available on most charting services.

If a price scale is constructed using a linear scale, the space between each price point (10, 20,

30, 40) is separated by an equal amount. A price move from 10 to 20 on a linear scale is the

same distance on the chart as a move from 40 to 50. In other words, the price scale measures

moves in absolute terms and does not show the effects of percent change.

Figure No.: 4.9 Price Scale

Source: www.metastock.com

If a price scale is in logarithmic terms, then the distance between points will be equal in terms

of percent change. A price change from 10 to 20 is a 100% increase in the price while a move

from 40 to 50 is only a 25% change, even though they are represented by the same distance

on a linear scale. On a logarithmic scale, the distance of the 100% price change from 10 to 20

will not be the same as the 25% change from 40 to 50. In this case, the move from 10 to 20 is

represented by a larger space one the chart, while the move from 40 to 50, is represented by a

smaller space because, percentage-wise, it indicates a smaller move. In Figure 2, the

logarithmic price scale on the right leaves the same amount of space between 10 and 20 as it

does between 20 and 40 because these both represent 100% increases.

4.6.15.2 Types Of Charts

There are four main types of charts that are used by investors and traders depending on the

information that they are seeking and their individual skill levels. The chart types are: the line

chart, the bar chart, the candlestick chart and the point and figure chart.

1. Line Chart

The most basic of the four charts is the line chart because it represents only the closing prices

over a set period of time. The line is formed by connecting the closing prices over the time

frame. Line charts do not provide visual information of the trading range for the individual

points such as the high, low and opening prices. However, the closing price is often

considered to be the most important price in stock data compared to the high and low for the

day and this is why it is the only value used in line charts.

Source: www.metastock.com

2. Bar Charts

One of the basic tools of technical analysis is the Bar Chart, where the open, close, high,

and low prices of stocks or other financial instruments are embedded in bars which are

plotted as a series of prices over a specific time period. Bar charts allow traders to see

patterns more easily. In other words, each bar is actually just a set of 4 prices for a given day,

or some other time period, that is connected by a bar in a specific way—hence, it is often

referred to as a price bar.

Figure No.: 4.11 Price Bar

Source: www.thismatter.com

A price bar shows the opening price of the financial instrument, which is the price at the

beginning of the time period, as a left horizontal line, and the closing price, which is the last

price for the period, as a right horizontal line. These horizontal lines are also called tick

marks. The high price is represented by the top of the bar and the low price is depicted by

the bottom of the bar.

The bar chart expands on the line chart by adding several more key pieces of information to

each data point. The chart is made up of a series of vertical lines that represent each data

point. This vertical line represents the high and low for the trading period, along with the

closing price. The close and open are represented on the vertical line by a horizontal dash.

The opening price on a bar chart is illustrated by the dash that is located on the left side of the

vertical bar. Conversely, the close is represented by the dash on the right. Generally, if the

left dash (open) is lower than the right dash (close) then the bar will be shaded black,

representing an up period for the stock, which means it has gained value. A bar that is

colored red signals that the stock has gone down in value over that period. When this is the

case, the dash on the right (close) is lower than the dash on the left (open).

Following is a bar chart that represents the details:

Figure No.: 4.12 Bar Chart

Source: www.metastock.com

3. Candlestick Charts

Another type of chart used in technical analysis is the candlestick chart, so called because the

main component of the chart representing prices looks like a candlestick, with a thick body,

called the real body, and usually a line extending above and below it, called the upper

shadow and lower shadow, respectively. The top of the upper shadow represents the high

price, while the bottom of the lower shadow represents the low price. Patterns are formed

both by the real body and the shadows. Candlestick patterns are most useful over short

periods of time, and mostly have significance at the top of an uptrend or the bottom of a

downtrend, when the patterns most often signify a reversal of the trend.

Figure No.: 4.13 Candle-Stick Bar Parts

Source: www.wikipedia.com

While the candlestick chart shows basically the same information as the bar chart, certain

patterns are more apparent in the candlestick chart. The candlestick chart emphasizes opening

and closing prices. The top and bottom of the real body represents the opening and closing

prices. Whether the top represents the opening or closing price depends on the color of the

real body—if it is white, then the top represents the close; black, or some other dark color,

indicates that the top was the opening price. The length of the real body shows the difference

between the opening and closing prices. Obviously, white real bodies indicate bullishness,

while black real bodies indicate bearishness, and their pattern is easily observable in a

candlestick chart.

The candlestick chart is similar to a bar chart, but it differs in the way that it is visually

constructed. Similar to the bar chart, the candlestick also has a thin vertical line showing the

period's trading range. The difference comes in the formation of a wide bar on the vertical

line, which illustrates the difference between the open and close. There are two color

constructs for days up and one for days that the price falls. When the price of the stock is up

and closes above the opening trade, the candlestick will usually be white or clear. If the stock

has traded down for the period, then the candlestick will usually be red or black, depending

on the site. If the stock's price has closed above the previous day’s close but below the day's

open, the candlestick will be black or filled with the color that is used to indicate an up day

It can be illustrated as:

Figure No.: 4.14 Candle-Stick Chart

Source: www.metastock.com

4. Point-and-Figure Charts:

Point-and-figure charts list only significant price information as columns of X's and O's

without regard to time, so that trends, resistance and support levels are more apparent.

Although time is depicted on the horizontal axis, the units of time are determined by when

the trend changes.

There are several ways of constructing point-and-figure charts, but all are based on box size,

which is the minimum price differential necessary before a price is recorded as an X or an O.

Columns of X's show an uptrend, and O's show a downtrend. Generally, closing price

differentials are used. There is no high, low, opening, or closing prices recorded, since only

the change in price greater than the box size is recorded as an X if the price differential is up

or as an O if it is down. Each consecutive X is recorded in the same column above the

previous X until the price reverses by more than the box size, then a new column is started by

recording an O in a box below and to the right of the highest X in the previous column. O's

are added downward with each price decrease greater than the box size until the downtrend

reverses to an uptrend, starting a new column where the 1st X is placed in the box above and

to the right of the last O in the previous column.

The construction of point-and-figure charts simplifies the drawing of trend lines, and support

and resistance levels, which is why point-and-figure charts are ideal for detecting trends, and

determining support and resistance levels.

Following is the point-and-figure chart of Intel Corporation. In this chart, the X's are green

and the O's are red, which increases their contrast, making patterns more apparent.

Figure No.: 4.15 Point And Figure Chart

Source: www.tradestation.com

This seems to be the most common type of point-and-figure chart, but there are several

variations that differ significantly from the above description.

Charts are one of the most fundamental aspects of technical analysis. It is important that one

should clearly understand what is being shown on a chart and the information that it provides.

4.6.15.3 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.

The theory behind chart patterns is based on the third assumption that is history repeats itself.

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.

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 in Figure, 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.

Figure no.: 4.16 head and shoulder chart pattern

Source: www.metastock.com

Figure: 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 in

Figure 1, 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. It can be 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.

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.

Figure No.: 4.17 Cup And Handle Chart Pattern

Source: www.metastock.com

As it can be seen in the above figure, 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. There

is a wide ranging time frame for this type of pattern, with the span ranging from several

months to more than a year.

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.

Figure No.: 4.18 double tops and bottoms chart pattern

Source: www.metastock.com

In the case of the double top pattern in Figure 3.17, 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.

Figure no.: 4.19 triangles chart pattern

Source: www.metastock.com

The symmetrical triangle in Figure 4 is a pattern in which two trendline 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 direction. In an ascending triangle, the upper trendline is flat,

while the bottom trendline 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 trendline is

flat and the upper trendline is descending. This is generally seen as a bearish pattern where

chartists look for a downside breakout.

5. Flag and Pennant

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

sharp 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.

Figure no.: 4.20 Flag And Pennant Chart Pattern

SOURCE: www.metastock.com

As you can see, 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 trendline, 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 trendline. In both cases, the trend is

expected to continue when the price moves above the upper trendline.

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.

Figure No.: 4.21 Wedge Chart Pattern

Source: www.metastock.com

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. In the above figure, 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 trendline, it

would form a continuation pattern, while a move below the lower trendline would signal a

reversal pattern.

7. Gaps

A gap is witnessed very recently when the trade was halted due to upper freeze @ 20%. A

gap in a chart is an empty space between a trading period and the following trading period.

This occurs when there is a large difference in prices between two sequential trading periods.

For example, if the trading range in one period is between INR 25 and INR 30 and the next

trading period opens at INR 40, there will be a large gap on the chart between these two

periods. Gap price movements can be found on bar charts and candlestick charts but will not

be found on point and figure or basic line charts. Gaps generally show that something of

significance has happened in the security, such as a better-than-expected earnings

announcement.

There are three main types of gaps, breakaway, runaway (measuring) and exhaustion. A

breakaway gap forms at the start of a trend, a runaway gap forms during the middle of a trend

and an exhaustion gap forms near the end of a trend.

4.7 Technical Indicators

Indicators are calculations based on the price and the volume of a security that measure such

things as money flow, trends, volatility and momentum. Indicators are used as a secondary

measure to the actual price movements and add additional information to the analysis of

securities. Indicators are used in two main ways: to confirm price movement and the quality

of chart patterns, and to form buy and sell signals.

There are two main types of indicators: leading and lagging. A leading indicator precedes

price movements, giving them a predictive quality, while a lagging indicator is a

confirmation tool because it follows price movement. A leading indicator is thought to be the

strongest during periods of sideways or non-trending trading ranges, while the lagging

indicators are still useful during trending periods.

There are also two types of indicator constructions: those that fall in a bounded range and

those that do not. The ones that are bound within a range are called oscillators - these are the

most common type of indicators. Oscillator indicators have a range, for example between

zero and 100, and signal periods where the security is overbought (near 100) or oversold

(near zero). Non-bounded indicators still form buy and sell signals along with displaying

strength or weakness, but they vary in the way they do this.

The 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.

Indicators that are used in technical analysis provide an extremely useful source of additional

information. These indicators help identify momentum, trends, volatility and various other

aspects in a security to aid in the technical analysis of trends. It is important to note that while

some traders use a single indicator solely for buy and sell signals, they are best used in

conjunction with price movement, chart patterns and other indicators.

4.7.1 Moving Average Convergence Divergence (MACD):

The moving average convergence divergence (MACD) is one of the most well known and

used indicators in technical analysis. This indicator is comprised of two exponential moving

averages, which help to measure momentum in the security. The MACD is simply the

difference between these two moving averages plotted against a centerline. The centerline is

the point at which the two moving averages are equal. Along with the MACD and the

centerline, an exponential moving average of the MACD itself is plotted on the chart. The

idea behind this momentum indicator is to measure short-term momentum compared to

longer term momentum to help signal the current direction of momentum.

MACD= shorter term moving average – longer term moving average

When the MACD is positive, it signals that the shorter term moving average is above the

longer term moving average and suggests upward momentum. The opposite holds true when

the MACD is negative - this signals that the shorter term is below the longer and suggest

downward momentum. When the MACD line crosses over the centerline, it signals a

crossing in the moving averages. The most common moving average values used in the

calculation are the 26-day and 12-day exponential moving averages. The signal line is

commonly created by using a nine-day exponential moving average of the MACD values.

These values can be adjusted to meet the needs of the technician and the security. For more

volatile securities, shorter term averages are used while less volatile securities should have

longer averages.

Another aspect to the MACD indicator that is often found on charts is the MACD histogram.

The histogram is plotted on the centerline and represented by bars. Each bar is the difference

between the MACD and the signal line or, in most cases, the nine-day exponential moving

average. The higher the bars are in either direction, the more momentum behind the direction

in which the bars point.

As you can see in below figure, one of the most common buy signals is generated when the

MACD crosses above the signal line (blue dotted line), while sell signals often occur when

the MACD crosses below the signal.

Figure No.: 4.22 Moving Average Convergence Divergence

Source: www.metastock.com

4.7.2 RELATIVE STRENGTH INDEX (RSI):

It is another one of the most used and well-known momentum indicators in technical

analysis. RSI helps to signal overbought and oversold conditions in a security. The indicator

is plotted in a range between zero and 100. A reading above 70 is used to suggest that a

security is overbought, while a reading below 30 is used to suggest that it is oversold. This

indicator helps traders to identify whether a security’s price has been unreasonably pushed to

current levels and whether a reversal may be on the way.

Figure No.: 4. Relative Strength Index

Source: www.metastock.com

The standard calculation for RSI uses 14 trading days as the basis, which can be adjusted to

meet the needs of the user. If the trading period is adjusted to use fewer days, the RSI will be

more volatile and will be used for shorter term trades.

4.7.3 STOCHASTIC OSCILLATOR

The stochastic oscillator is one of the most recognized momentum indicators used in

technical analysis. The idea behind this indicator is that in an uptrend, the price should be

closing near the highs of the trading range, signaling upward momentum in the security. In

downtrends, the price should be closing near the lows of the trading range, signaling

downward momentum.

The stochastic oscillator is plotted within a range of zero and 100 and signals overbought

conditions above 80 and oversold conditions below 20. The stochastic oscillator contains two

lines. The first line is the %K, which is essentially the raw measure used to formulate the idea

of momentum behind the oscillator. The second line is the %D, which is simply a moving

average of the %K. The %D line is considered to be the more important of the two lines as it

is seen to produce better signals. The stochastic oscillator generally uses the past 14 trading

periods in its calculation but can be adjusted to meet the needs of the user.

Figure no.: 4.24 Stochastic Oscillator

Source: www.metastock.com

4.7.4 THE DOW THEORY

The Dow Theory is a major corner stone of technical analysis. It is one of the oldest and best

known methods used to determine the major trend of stock prices. It tells about the future

prospects regarding a particular stock. It indicates the direction of the price of the share by

looking in to which an investor can think for investment on that particular stock.

Seven Basic Principles of Dow's Theory: 

1.Everything is discounted by the price Averages, specifically, the Dow-Jones Industrial

Average and the Dow-Jones Transportation Average. Since the Averages reflect all

information, experience, knowledge, opinions, and activities of all stock market investors,

everything that could possibly affect the demand for or supply of stocks is discounted by the

Averages.

2.There are three trends in stock prices. 1) The Primary Tide is the major long-term trend.

But no trend moves in a straight line for long, and 2) Secondary Reactions are the

intermediate-term corrections that interrupt  and move in an opposite direction against the

Primary Tide. 3) Ripples are the very minor day-to-day fluctuations that are of concern only

to short-term traders and not at all to Dow Theorists.

3. Primary Tides going up, also known as Bull Markets, typically unfold in three up

moves in stock prices. The first move up is the result of far-sighted investors accumulating

stocks at a time when business is slow but anticipated to improve. The second move up is a

result of investors buying stocks in reaction to improved fundamental business conditions and

increasing corporate earnings. The third and final up move occurs when the general public

finally notices that all the financial news is good. During the final up move, speculation runs

rampant.

4. Primary Tides going down, also known as Bear Markets, typically unfold in three

down moves in stock prices. The first move down occurs when far-sighted investors sell

based on their experienced judgement that high valuations and booming corporate earnings

are unsustainable. The second move down reflects panic as a now fearful public dumps at any

price the same stock they just recently bought at much higher prices. The final move down

results from distress selling and the need to raise cash.

5. The two averages must confirm each other. To signal a Primary Tide Bull Market major

trend, both averages must rise above their respective highs of previous upward Secondary

Reactions. To signal a Primary Tide Bear Market major trend, both the Dow-Jones Industrial

Average and the Dow-Jones Transportation Average must drop below their respective lows

of previous Secondary Reactions. A move to a new high or low by just one average alone is

not meaningful. Also, it is not uncommon for one average to signal a change in trend before

the

other. The Dow Theory does not stipulate any time limit on trend confirmation by both

averages.

6. Only end-of-day, closing prices on the averages are considered. Price movements during

the day are ignored.

7. The Primary Tide remains in effect until a Dow Theory reversal has been signaled by

both averages.

It can act as an yardstick to choose the growing stocks and investing in those in anticipation

of future profits.

4.7.5 The Short Interest Ratio Theory

The Short Interest Ratio is derived by dividing the reported short interest or the number of

shares sold short, by the average volume foe about 30 days. When short sales increase

relative to total volume, the indicator rises. A ratio above 150% is considered bullish, and a

ratio below 100% is considered bearish.

The logic behind this ratio is that speculators and other investors sell stocks at high price in

anticipation of buying them back at lower prices. Thus, increasing short selling is viewed as a

sign of general market weakness, and short covering (as evidenced by decreasing short

positions) as a sign of strength. An existing large short interest is considered a sign of

strength, since the cover (buying) is yet to come; whereas an established slight short interest

is considered a sign of weakness (more short-sells are to come).

4.7.6 The Confidence Index

It is the ratio of a group of lower-grade bonds to a group of higher-grade bonds. According to

the theory underlying this index, when the ratio is high, investors’ confidence is likewise

high, as reflected by their purchase of relatively more of the lower-grade securities. When

they buy relatively more of the higher-grade securities, this is taken as an indication that

confidence is low, and is reflected in a low ratio.

4.7.7 SPREADS

Large spread between yields indicate low confidence and are bearish; the market appears to

require a large compensation for business, financial and inflation risks. Small spreads

indicate high confidence and are bullish. In short, the larger the spreads, the lower the ratio

and the less the confidence. The smaller the spreads, the greater the ratio, indicating greater

confidence.

4.7.8 THE ADVANCE-DECLINE RATIO

The index-relating advance to decline is called the Advance-Decline Ratio. When advances

persistently out number declines, the ratio increases. A bullish condition is said to exist, and

vice-versa. Thus, an Advance-Decline Ratio tries to capture the market’s underlying strength

by taking in to account the number of advancing and declining issues.

4.7.9 THE MARKET BREADTH INDEX

The Market Breadth Index is a variant of the Advance-Decline Ratio. To compute it, we take

the net difference between the number of stocks rising and the number of stocks falling,

added (or subtracted) to the previous. For example, if in a given week 600 shares advanced,

200 shares declined, and 200 were unchanged, the breadth would be 2 i.e., (600-200)/200.

The figure of each week is added to previous week’s figure. These data are then plotted to

establish the pattern of movement of advance and decline.

The purpose of the Market Breadth Index is to indicate whether a confirmation of some index

has occurred. If both the stock index and the market breadth index increase, the market is

bullish; when the stock index increase but the breadth index does not, the market is bearish.

4.7.10 THE ODD-LOT RATIO

Odd-lot transactions are measured by odd-lot changes in index. Odd-lots are stock

transactions of less than, say, 100 shares. The Odd-lot ratio is sometimes referred to as a

yardstick of uniformed sentiment or an index of contrary opinion, because the odd-lot theory

assumes that small buyers or sellers are not very bright especially at tops and bottoms when

they need to be the brightest. The Odd-lot ratio theory assumes that the odd-lot short sellers

are even more likely to be wrong than odd-lotters in general. This indicator relates odd-lot

sales to purchases.

4.7.11 INSIDER TRANSACTIONS

The hypothesis that insider activity may be indicative of future stock prices has received

some support in academic literature. Since insiders have the best picture of how the firm is

faring, some believers of technical analysis feel that these inside transactions offer a clue, to

future earnings, dividend and stock price performance. If the insiders are selling heavily, it is

considered a bearish indicator and vice versa. Stockholders do not like to hear that the

president of a company is selling large blocks of stock of the company. Although the

president’s reason for selling the stock may not be related to the future growth of the

company, it is still considered bearish as investors figure the president, as an insider, must

know something bad about the company that they, as outsiders, do not know.

4.7.12 THE CREDIT-BALANCE THEORY

Typically, investors receive credit balances in their accounts at their brokerage houses when

they sell stock. At this point the investor has two choices: he can either have the credit

balance forwarded to him or leave the credit balance in the account. However, these balances

frequently earn no interest. Thus, the only reason for maintaining the credit balance in the

account would be for purposes of reinvestment of these funds in the very near future.

Some feel that a build-up in these cash balances represent large reserve of potential buying

power. In effect, investors are leaving the credit balances in their brokerage firm accounts

because they anticipate a drop in prices, thus a buying opportunity. Conversely, a drop in

credit balance suggests that prices will go up. Because, an increase in prices was expected,

investors have already used up their credit balances. However, Technicians feel that investors

in general, as their actions get reflected in credit balances are usually wrong; that is, the

investors are buying stocks when they should be selling them and selling stocks when they

should be buying. As such, the credit balance theory is a contrary opinion theory.

In other words, technicians suggests that wise investor will buy stocks as credit balances are

rising and sell stocks as credit balances are dropping. In short technicians say the wise

investor should do the opposite of what the credit balances are doing.

4.7.13 PERFORMANCE OF LINKED MARKETS

For an investor, the performances of the markets play a vital role to estimate the future

performance of the market in which it trades in. If relative markets show a positive

performance it can be anticipated that the market will go positively. If it shows a downward

trend, it can be anticipated that the market will take a down turn. Generally, for Indian

investors the NASDAQ, DOWZONES and Singapore have a much relation to guard their

decisions to anticipate the future market tendency.

4.8 SUMMARY

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

generated by market activity. It is based on three assumptions: 1) the market

discounts everything, 2) price moves in trends and 3) history tends to repeat itself.

• Technicians believe that all the information they need about a stock can be found in

its charts.

• Technical traders take a short-term approach to analyzing the market.

• Criticism of technical analysis stems from the efficient market hypothesis, which

states that the market price is always the correct one, making any historical analysis

useless.

• One of the most important concepts in technical analysis is that of a trend, which

the general direction that a security is headed is. There are three types of trends:

Uptrends, downtrends and sideways/horizontal trends.

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

trend in the market or a stock.

• A channel, or channel lines, is the addition of two parallel trendlines that act as

strong areas of support and resistance.

• Support is the price level through which a stock or market seldom falls. Resistance

is the price level that a stock or market seldom surpasses.

• Volume is 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.

• A chart is a graphical representation of a series of prices over a set time frame.

• The time scale refers to the range of dates at the bottom of the chart, which can vary

from decades to seconds. The most frequently used time scales are intraday, daily,

weekly, monthly, quarterly and annually.

• The price scale is on the right-hand side of the chart. It shows a stock's current price

and compares it to past data points. It can be either linear or logarithmic.

• There are four main types of charts used by investors and traders: line charts, bar

charts, candlestick charts and point and figure charts.

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

or a sign of future price movements. There are two types: reversal and continuation.

• A head and shoulders pattern is reversal pattern that signals a security is likely to

move against its previous trend.

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

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

• Double tops and double bottoms 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.

• A triangle is a technical analysis pattern created by drawing trendlines along a price

range that gets narrower over time because of lower tops and higher bottoms.

Variations of a triangle include ascending and descending triangles.

• Flags and pennants are short-term continuation patterns that are formed when there

is a sharp price movement followed by a sideways price movement.

• 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.

• A gap in a chart is an empty space between a trading period and the following

trading period. This occurs when there is a large difference in prices between two

sequential trading periods.

• A moving average is the average price of a security over a set amount of time.

There are three types: simple, linear and exponential.

• 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.

• Indicators are calculations based on the price and the volume of a security that

measure such things as money flow, trends, volatility and momentum. There are

two types: leading and lagging.

• The accumulation/distribution line is a volume indicator that attempts to measure

the ratio of buying to selling of a security.

• The moving average convergence divergence (MACD) is comprised of two

exponential moving averages, which help to measure a security's momentum.

• The relative strength index (RSI) helps to signal overbought and oversold

conditions in a security.

• The stochastic oscillator compares a security's closing price to its price range over a

given time period.

CHAPTER-5

A SAMPLE SURVEY

5.1 OBJECTIVES OF THE SURVEY

The survey has been carried out in order to find out:

Whether people invest in stock market?

How much returns one expects by investing in stock market?

Whether investors believe in Technical Analysis and/or Fundamental Analysis?

Do people use Technical Indicators at the time of investment decision-making?

Do Technical Analysis better than Fundamental Analysis as an indicator?

5.2 SAMPLE COMPOSITION

In all 220 persons were interviewed. 20 out of them revealed that they don’t have any interest

in securities market. Therefore, those respondents were not considered for answering the

questionnaire. The remaining 200 thereby formed the sample size of this survey.

1. Age Composition

20-30 30-40 40-60 More than 60

106 80 14 0

20-3030-4040-60More than 60

2. Occupation

Self-

Employed

Salarie

d Student Govt. Employee Retired Others

40 100 47 0 6 7

Chart TitleSelf-EmployedSalariedStudentGovt. EmployeeRetiredOthers

3. Income Level (Per Month)

Less Than

Rs. 5,000

Rs. 5,000 to

Rs. 10,000

Rs. 10,000 to

Rs. 25,000

Rs. 25,000 to

Rs. 50,000

Rs.50,000 and

Above

54 94 20 26 6

Less Than Rs. 5,000 Rs. 5,000-Rs. 10,000Rs. 10,000-Rs. 25,000Rs. 25,000-Rs. 50,000Rs.50,000 and Above

5.3 OUTCOMES OF THE SURVEY

Following are the outcomes that have been revealed from the survey:

1. PEOPLE WHO INVEST IN STOCK MARKET

As a part of this study it was found that out of 200 people 147 people invest in stock market

where as the rest 53 has no believe on the stock market.

Invest Do not Invest

147 53

InvestDo not Invest

2. RETURN EXPECTED PER ANNUM

Out of 200 people that invest in stock market, most of the investors i.e., 102 in number

expect a return of 20-50 percent per annum, where as 65 investor expect a return of more

than 50% p.a. 21 investors like 10-20 percent return per annum and 12 person who is

satisfied with an expected return of less than 10% p.a.

Less Than

10%

10% -

20%

20%-

50%

More Than

50%

12 21 102 65

Less Than 10%10% - 20%20%-50%More Than 50%

3. STOCKS IN WHICH INVESTORS PREFER TO INVEST IN

Out of 200 investors, 127 investors used to invest in midcap stocks, 54 in blue-chips and not

a single investor in penny shares. It indicates that most of the investors have a strong believe

on midcap stocks.

Blue

Chip

Mid

Cap

Penny

Shares All

54 127 0 19

Blue ChipMid CapPenny SharesAll

4. INVESTORS TRADING INTRADAY

Out of 200 investors, 118 investors practice intraday where as 82 don’t want to take

much risk by doing intraday trading.

Practice Don't Practice

82 118

PracticeDon't Practice

5. ANALYSIS INVESTORS BELIEVE UPEN

It was revealed that a major portion of the investors believe in both Technical Analysis as

well as in Fundament Analysis as 84investors believe on both.

Fundamental

Analysis

Technical

Analysis Both None

51 47 84 18

Fundamental AnalysisTechnical AnalysisBothNone

6. INVESTORS BELIEVE ON DOW-THEORY

An average number of investors believe on the Dow-Theory i.e., 12 where as 10 do

not.

Use Don't Use

90 110

UseDon't Use

7. TYPE OF CHART USED BY INVESTORS

The Candle-stick chart is very popular by investors while analyzing the market

condition as 55 out of 200 investors rely on that. The major thing is that 55 investors believe

on all the four types of charts where as 18 investor never use any of the charts to analyze.

Line Chart Bar Chart

Candle Stick

Chart

Point & Figure

Chart All Non

45 9 55 18 55 18

Line ChartBar ChartCandle Stick ChartPoint & Figure ChartAllNon

8. INVESTORS TRADE IN DERIVATIVES

Relatively more than the average investors used to invest in derivative instruments as

127 love to invest in derivatives out of 200

Trade Don't Trade

127 73

TradeDon't Trade

9. TYPE OF DERIVATIVE INVESTORS INVEST IN

Out of 127 investor those invest in derivatives, most of the investors like to invest in

Index options as compared to other derivative instruments. The statistics shows that, out of

127 investors trading in derivatives, 45 invest in Index Options, 9 invest in Stock Options,

one in Stock Futures and 9 invest in Index Futures. 37 investors invest in all the four types of

derivatives.

Index Futures Index Options Stock Futures Stock Options All

9 45 9 27 37

Index FuturesIndex OptionsStock FuturesStock OptionsAll

10. IS TECHNICAL ANALYSIS AN INDICATOR FOR INVESTMENT DECISION-

MAKING ?

From the study, it was found that out of 200 people 126 treat the Technical Analysis

as an indicator for investment decision making but 60 people did not agree on that. Some 14

people were unable to decide whether Technical Analysis is an indicator or not.

In Favour Against Can't Say

126 60 14

In Favour Against

Can't Say

As most of the people have the opinion that Technical Analysis indicates the market

behavior, it can be accepted that Technical Analysis is an indicator for investment decision

making.

5.4 OPINION OF THE INVESTORS

During the survey, different investors have shared different views regarding investment. The

discussions and question answer sessions with them revealed lots of practical trading and

investing strategies that can help one to take appropriate investment decisions at the right

time and at the right way. Some of the most discussed and suggested tips of investment and

day-trading are as follows:

1. Check buying volumes

Before buying check out the buying and selling quantity (volumes). If buying volume started

increasing then the stock may go up and if selling volumes start increasing the stock price

may come down.  

2. Check derivative status

If possible try to check out the derivative of the stock which you want to trade.

If derivative of that particular stock is going up with increasing buying volumes then you can

immediately grab (buy) that share/stock. Most of the time it is seen that, if the derivative

price goes up, then its share price also goes up.

3. Wait for the target price to buy

For example, if buy is given at 150.5 then don’t buy below this price, only buy at 150.5 price

or slightly higher than price. Because the given buy price may be the resistance price, if it

breaks then share price goes up or else may not go up above 50.5. So plan to buy at given

targeted price, don’t buy below target price.

4. Strictly maintain Stop Loss

Strictly maintain the given stop losses. This will help you to minimize your further losses.

Suppose for moment the share you bought falls drastically down, then you may end up with

huge loss. So always maintain given stop loss. “Stop Loss will reduce your loss”.

5. Down wait for huge profit in single share/trade

If you are getting some profit and if you notice that is not further moving up (it’s called

consolidation) then you can sell your share/stock and come out of that trade. In this manner,

you can earn small profit instead of loss then you can do another trade and again earn small

profit. Likewise if you keep earning couple of small profits in a single day then all your

small profits will add up to huge profit amount in a single day. “Get satisfied in small profit

and do multiple trades”.

6.Don’tOvertrade

First and very important is not to Overtrade - Never put all your money/savings in share

market. Most of the brokers provide margin amount but it is up to you how to make use of

this margin amount. Most of the traders make use of this margin amount for over trading

which is risky.

7. Wait, Watch and Trade

Do not jump in market early. Wait, watch and trade. Confirm the market direction and make

sure and confirm all your strategies like resistance and support levels  and then plan to trade.

8. Study tips carefully

Do not react to tips given by anyone - First observe that stock, check the volume, where they

are increasing or decreasing and then decide your trade.  Do not buy or sell blindly based on

share tips. Most of the share tips do not work if market direction changes.

9. Always go with Market trend

Don’t short sell, if the market is going up and don’t buy if the market is falling down. Trade

with market direction and don’t go against market direction.

10. Try to minimize your Loss and increase profit

Get ready to accept loss if you do wrong trade - Come out of your trade if you have entered

in wrong time by accepting loss instead of waiting for trade to reverse and finally it is

coming down from top means it is cooling, if you see more buyer than seller then you can

hold your position. You must know which share has what momentum, means if the share

price is Rs.120 then you can expect upside from Rs.1 to 5 and not Rs.50 to 100. If the scrip is

going up, it will go in ladder fashion, it will go up and it will come down bit and it will again

continue its upward journey.

11. Wait for opportunity

If you are not sure about market movement then watch and wait for opportunity don’t trade

forcefully. Some times market move in range bound means market move up-down in very

small range at that time it becomes very difficult to judge the market direction and do

intraday trading. Its always better to wait instead of losing money.

12. Don’t expect too much

Don’t expect too much - Be happy in whatever profit you get, don’t try to grab too much

from market. Be realistic, and don’t expect too much. It can be remembered that while doing

day trading, you should square off your positions with appropriate profit instead of waiting

for big profit.

13. Advice for high returns

Lack of Knowledge is very risky and very dangerous, so don’t do trading or investing

without having proper knowledge. Read books, refer websites and get prepared before you

plan for share market trading or investing.

CHAPTER-6

CONCLUSION AND SUGGESTIONS

6.1 FINDINGS:

From this study one can able to extract out the fundamental aspects of Technical Analysis as

well as its applicability. Some of the major findings of the study are mentioned below:

1) Unlike Fundamental Analysis, Technical Analysis is also very much important to play in

the stock market.

2) Fundamental Analysis tells about “right choice” where as Technical Analysis tells about

the “right time” to enter or exit from the market.

3) Technical Analysis assumes that history tends to repeat itself, but it is not wise to believe

that the same trend will occure next.

4) Support and Resistance levels are the levels at which a lot of traders are willing to buy

the stock or sell it. So, an investor has to keep its eyes and ears open at this point of time.

5) Among the various types of charts the Candle-Stick Chart is the most effective and

acceptable tool to evaluate the performance of a stock and forecast the future.

6) When an investor looks in to the numerous types of chart patterns, it creates a lot of

confusion and expectations in the minds of the investors.

7) The Moving Average Convergence Divergence (MACD) is the most well known and

used indicator in Technical Analysis as it is based on real facts of past performance.

8) In trading, volumes have equal importance along with price to confirm the formulation

of a trend or a technical pattern. With the help of volumes we can easily determine

whether the demand side is greater or supply side is greater for stocks at any given point

of time.

9) In Bhubaneswar, most of the investors are risk-averse in nature. People hesitate to invest

in derivatives by taking much risk.

10) Most of the investors are not aware of the sophisticated and well designed tools of

technical analysis. They invest without going through the technical analysis.

11) Though Technical Analysis plays a lion’s role to decide investment pattern as

Fundamental Analysis, it cannot be treated as a substitute to Fundamental Analysis.

6.2 SUGGESTIONS:

By going through the subject matter, analysis, opinion of the respondents and the findings,

the following points can be suggested for the purpose of further reference and

implementation:

1) Technical analysis is a game of charts and figures. So, at the time of taking any decision

regarding investment, Fundamental Analysis and other factors should also be taken in

to consideration along with Technical Analysis.

2) Instead of looking in to all chart patterns, it is good to follow a single chart pattern and

to draw timely conclusion by interpreting that.

3) Market never tells anything of its own! It’s the investor who has to look in to the market

and catch up the indicator to forecast and expect the market trend.

4) Most of the investors assume that by using charts and patterns, they can earn much by

purchasing in low and selling at high prices. But, it is not so easy as they think. So, such

believes should be rooted out from mind before looking towards market.

5) As we have a globalised market, along with the domestic market the performance of the

overseas markets should also be considered and the help of modern financial

instruments should be taken to reduce risk and maximize the probability of gaining

more.

6) And, as per Apollo Sindhoori Capital Investments Ltd. Is concerned, there is an ample

scope to expand and increase its revenue in this post-recession-recovering market. So,

the organisation has to look in to its service-providing-skills and problems to attract

more customers in the market. Although it has a good brand name, still it has to go for

optimum advertisement and well skilled human resources.

6.3 CONCLUSION:

A large number of new investors think that there is easy and quick money in investing and

day trading. They think that they can buy at bottoms and sell at tops very easily. They thing

that since they can analyse the chart patterns and use technical analysis very well, they can

trade consistently with 90% accuracy. They think that they can invest small amount and trade

for large amounts to earn big profits by utilizing multiple exposure on their margin amount

and fail to understand the real market behavior. They fail to understand that investing is not

like “GO…..STOP” game. Here, only disciplined investors well equipped with sophisticated

technical tools having presence of mind can sustain and make the indices favourable for them

irrespective of market trends whether bull or bear. The only thing that matters in investment

is “Right Time and Right Choice” which can be tamed through proper analysis and

understanding of the whole game as the NSE has rightly narrated….

There are no secret formulas to succeed in the markets and players have to adapt constantly to the changes the

market throws at them.

”Success is simple. Do what's right, the right way, at the right time.”

“ SOCHKAR,

SAMAJHKAR,

INVESTKAR”

BIBLIOGRAPHY:

1. Bhat, Sudhindra: Security Analysis And Portfolio Management, Excel Books, First

Edition, 2008

2. Singh, Preeti: Investment Management, Himalaya Publishing House, 14th Edition,

2006

3. Chandra, Prasanna: Investment Analysis And Portfolio Management, Tata Mcgraw

Hill Pub. Co. Ltd.

4. Fischer, Donald E. and Jordan, Ronald T.: Security Analysis And Portfolio

Management, Pearson, Prentice Hill, 16th Edition, 2006

WEBLIOGRAPHY:

To complete this study the following Internet portals have helped a lot:

1. www.destimoney.com

2. www.moneycontrol.com

3. www.trending123.com

4. www.investopedia.com

5. www.sharevyapaar.com

6. www.nseindia.com

7. www.myiris.com

8. www.wikipedia.com

9. www.metastock.com

10. www.findarticles.com

11. www.tradestation.com

12. www.stockcharts.com

13. www.traderslog.com

14. www.learningmarkets.com

15. www.thismatter.com

16. www.bseindia.com

APPENDIX:

QUESTIONNAIRE FOR THE SURVEY

1.Name of the Respondent:______________________________________________

2. Please specify your gender.

Male

Female

3. Please select your age group.

Below 30

30-60

60 & above

4. Please specify your martial Status

Unmarried

Married

5. Please specify your employment details

Salaried

Business

Retired (others)

Brand

6. Would you like to mention your monthly earnings?

Up to 10000

10001-30000

30000 & above

7. Please specify your educational detail.

Under Graduate

Graduate

Post Graduate & above

8. What is your occupation?

Accounts, Finance & Investment

Professionals

Others

9.you invest in stock market? (Yes/No)

10. If yes, how much money you have invested?

Rs.____________________

11.How much return you expect from your investment?

Rs.____________________

12.How many years you have experienced in stock market? _______

13.How many years you have experienced in stock market? _______

14.Which stocks you prefer to invest in?

a)Blue Chip b)Midcap c)Penny Shares

15.Do you practice Short-selling or Intraday? (Yes/No)

16. What is your risk tolerance level for short term fluctuations in your invested money in

case of equity investments?

Very low____________________________________1

Low________________________________________2

Moderate____________________________________3

High_______________________________________4

Very high__________________________________ 5

17. What is your attitude towards the following Financial Instruments, in the Indian Capital

Market? (Please mark the suitable option)

Highly

Favourable

Favourable Some What

Favourable

Not Very

Favourable

Not at all

favourable

a) Shares

b)Debentures

c)Mutual Funds

d)Bonds

18. What is your level of financial knowledge about the various investment avenues in the

market?

Excellent____________________________________1

Good_______________________________________2

Moderate____________________________________3

Not much___________________________________4

Very low____________________________________5

19. What are the various sources of investment information for you?

Newspapers/Magazines

Electronic Media (T.V.)

Peer group/Friends

Broker/Financial advisor

Internet

20.Which analysis you believe upon?

a)Fundamental b)Technical

c)Both d)None

21.If you believe on Fundamental Analysis;

a) You do Economic analysis? (Yes/No)

b) You do Industry analysis? (Yes/No)

c) You do Company analysis? (Yes/No)

22. If you believe on Technical Analysis;

a) Do you use Dow Theory? (Yes/No)

b) Which type of chart you prefer for analysis?

i) Line Chart ii)Bar Chart

iii)Candle Stick Chart iv)Point &Figure Chart

23.Do you trade in Derivatives? (Yes/No)

If yes; in which section?

a)Stock Futures b)Stock Options

c)Index Futures d)Index Options

24. Do you think Technical Analysis is better than Fundamental Analysis? (Yes/No)

25. Do you treat Technical Analysis as a compass to forecast and foresee the right direction of

the stock market? (Yes/No)

Signature of the Respondent

Date: