EXECUTIVE SUMMARY

Technical analysis is one of the most popular techniques used to make better investment decisions nowadays. It is a fact that the Technical indicators are used by the professionals and so informed decisions are taken before buying and selling equities or bonds encourages many investors to venture into the equity market segment. This project Technical Indicators and its Analysis is majorly divided into two main headings: A study on Technical analysis To analyze the movements taking place with the help of technical indicators

The 1st part of the Report i.e A study of Technical Analysis deals with the various tools/charts/methods with respect of the historical and current market movements. This section deals with the already given data or the secondary data which helps to build up a conceptual frame work for the further market analysis. The 2nd Part of the report mainly deals with the Technical analysis of the current market based on some primary data pertaining to the stock index of AXISBANK.

CHAPTER 1 INTRODUCTION

Commodities and Equities are two main sectors where in the major investment instruments are used to sketch some high returns. For any investor, it is important to understand the behavior and the pattern of investing in to any Equity or Commodity market. Hence the stock market becomes an important index to follow the situation of economy and to devise the investment strategies for short term as well as long term. The study mainly attempts to capture the usefulness of Technical Analysis while formulating Investment strategies by studying primary and secondary data available in the index.

1.1 RELEVANCE OF STUDY

This study embraces the analytical work based on both primary as well as secondary (historical in nature) data using various graphs and charts. This proves to be of great help in framing various investment strategies keeping in view both the short and long term goals of the investor.

1.2 OBJECTIVE
o To identify and sort out simple Technical analysis tool relevant for the formulation of various investment strategies. o To forecast market scenario for near future based on Technical Analysis. o To study the applicability of technical analysis to stock market

1.3 COMPANY PROFILE AXIS SECURITIES AND SALES LTD

Axis Bank is an Indian financial services corporation headquartered in Mumbai, Maharashtra. It had begun operations in 1994, after the Government of India allowed new private banks to be established. The Bank was promoted jointly by the Administrator of the Specified Undertaking of the Unit Trust of India (UTI-I), Life Insurance Corporation of India (LIC), General Insurance Corporation Ltd., National Insurance Company Ltd., The New India Assurance Company, The Oriental Insurance Corporation and United India Insurance Company UTI-I holds a special position in the Indian capital markets and has promoted many leading financial institutions in the country. As on the year ended 31st March 2012, Axis Bank had an operating revenue of 13,437 crores and a net profit of 4,242 crores. Axis Bank opened its registered office in Ahmedabad and corporate office in Mumbai in December 1993. The first branch was inaugurated in April 1994 in Ahmedabad by Dr. Manmohan Singh, then the Honorable Finance Minister. The Bank, as on 31st March 2012, is capitalised to the extent of Rest. 413.2 crores with the public holding (other than promoters and GDRs) at 54.08%.New Zealand born Richard Chandler owns about 9.5% share through Orient Global. On 14th March 2013 an online magazine named Cobrapost.com released video footage from Operation Red Spider showing high ranking officials and some employees of Axis bank willing to turn black money into white which is violation of Money Laundering Control Act. After this The government of India and Reserve Bank of India have ordered an inquiry

Axis Securities Limited (ASL) is a subsidiary company of Axis Bank Ltd .Axis Capital Limited, from whom the retail broking and sales business was demerger into Axis Securities Limited, was incorporated as UBL Sales Limited on December 6, 2005. The Company was renamed as Axis Sales Limited with effect from August 10, 2007, in alignment with the change in name of the Parent Company from UTI Bank to Axis Bank. The name of the Company further changed from Axis Sales Limited to Axis Securities and Sales Limited w.e.f. April 5, 2010, in view of the broking business proposed to be undertaken by the Company. The Company obtained the necessary approvals/registrations from the regulatory authorities including Securities and Exchange Board of India, National Stock Exchange of India Limited and Bombay Stock Exchange Limited for undertaking broking business on Stock Exchanges. The name of the Company was further changed to Axis Capital Limited with effect from September 28, 2012. Through a court approved process the retail stock broking business of Axis Capital Ltd was demerged and became a part of Axis Securities Limited on May 25, 2013. ASL is presently engaged in providing broking services and distribution of financial products to retail customers. The Company has a wide range of products catered to meet the needs of the customer. Customers can open a single account to invest in Equities, Mutual Funds, SIPs, IPOs, Derivatives, Bonds, NCDs, ETFs and Company Fixed Deposits. Customers can also avail other financial solutions through ASL such as Home Loans, Auto Loans, Personal Loans, Loan Against Property, Loan Against Shares and Loans for SME, Credit and Prepaid Cards. ASL is engaged in the business of marketing and selling financial products of the Axis Bank Limited. As of March 31, 2013, ASL has a well-connected branch network of 54 branches across 47 locations pan India.

CHAPTER NO 2 LITERATURE REVIEW

The use of market timing has long been the subject of much discussion. Several researchers question the usefulness of such techniques, arguing that such techniques usually cannot produce better returns than a buy-and-hold (B-H) strategy. Many filter rules were tested on the US stock market, with most of them concluding that filter rules do not generate superior returns to the B-H strategy. If the cost of transactions were considered, the returns could even be negative (Fama and Blume, 1966; Jensen and Benington 1970). These results are consistent with the efficient markets hypothesis. This hypothesis implies that technical analysis is without merit. In an efficient market, the current price reflects all available information including the past history of prices and trading volume. As investors compete to exploit their common knowledge of a stocks price history, they necessarily drive stock prices to levels where expected rate of return are exactly commensurate with risk. At those levels one cannot expect abnormal returns (see Fama, 1970). Although technicians recognize the value of information on future economic prospects of the firm, their position is that such information is not mandatory for a successful trading strategy. The reason is that whatever the fundamental reason for a change in the stock price, if the stock price is sluggish to adjust, the analyst should be able to identify a trend that could be exploited during the adjustment period. Consequently, the key to successful technical analysis is a lazy response of stock prices to fundamental supply-and-demand phenomena. Note that this prerequisite is diametrically opposite to the notion of an efficient market.Practitioners reliance on technical analysis is well documented.Frankel and Froot (1990a) noted that market professionals tend to include technical analysis in forecasting the market. There is also a shift away from the fundamentals to technical analysis in the 1980s, according to a survey done by Euromoney (Frankel and Froot, 1990a). On a market level, the prevalence of technical analysis is demonstrated by the
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fact that most real time financial information services, like Reuters and Telerate, provide detailed, comprehensive and up-to-date technical analysis information. It is obvious that the frequent upgrading of technical analysis services is a response to the demand for technical analysis services and competition among the financial information service providers. The guiding principle of technical analysis is to identify and go along with the trend. When there is a trend, whether started by random or fundamental factors, technical methods will tend to generate signals in the same direction. This reinforces the original trend, especially when many investors rely on the technical indicators. Thus, even if the original trend were a random occurrence, the subsequent prediction made by the technical indicator could be self-fulfilling. This self-fulfilling nature leads to the formation of speculative bubbles (Froot et al.,1992). Conrad and Kaul (1988) found that weekly returns were positively auto correlated, particularly for portfolios of small stocks. Frankel and Froot (1990b) suggested that the overpricing of the US dollar in the 1980s with respect to the underlying economic fundamentals could be due to the influence of technical analysis. Shiller (1984, 1987) found that irrational investor behaviour resulted in excess bond and stock market volatility. He also suggested that the October 1987 world-wide stock market crash could be due largely to technical analysis. Fama and French (1988) proposed a mean reverting model to explain stock price movements. They also found that autocorrelation of returns become strongly negative for a 35 year horizon. DeBondt and Thaler (1985, 1987) found that stocks that were extreme losers over a 35 year period tend to have strong returns relative to the market during the following years. Conversely, extreme winners tend to have weaker returns in subsequent years. Sy (1990) had argued against Sharpes (1975) conclusion, saying that there was no need for the predictive accuracy to be as high as 70% for the gains to be large. In addition, he demonstrated that market timing would be increasingly rewarding when the difference in returns between cash and stocks were narrowed and when market volatility increased. Balvers et al. (1990) show empirically that stock returns could be predicted based on national aggregate output. Other studies have shown that some fundamental data like price earnings ratio, dividend yields, business conditions and
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economic variables can predict to a large degree the returns on stocks (Campbell, 1987; Campbell and Shiller, 1988a, 1988b; Fama and French, 1989; Breen et al., 1990, among others). For further innovations, see Wong (1993, 1994) and Wong et al. (2001). Brown and Jennings (1989) showed that technical analysis has value in a model in which prices are not fully revealing and traders have rational conjectures about the relation between prices and signals. Frankel and Froot (1990) showed evidence for the rising importance of chartists. Neftci (1991) showed that a few of the rules used in technical analysis generate well- defined echniques of forecasting, but even well-defined rules were shown to be useless in prediction if the economic time series is Gaussian. However, if the processes under consideration are non-linear, then the rules might capture some information. Tests showed that this may indeed be the case for the moving average rule. Taylor and Allen (1992) report the results of a survey among chief foreign exchange dealers based in London in November 1988 and found that at least 90 per cent of respondents placed some weight on technical analysis, and that there was a skew towards using technical, rather than fundamental, analysis at shorter time horizons. In a comprehensive and influential study Brock, Lakonishok and LeBaron (1992) analysed 26 technical trading rules using 90 years of daily stock prices from the Dow Jones Industrial Average up to 1987 and found that they all outperformed the market. Blume, Easley and OHara (1994) show that volume provides information on information quality that cannot be deduced from the price. They also show that traders who use information contained in market statistics do better than traders who do not. Neely (1997) explains and reviews technical analysis in the foreign exchange market. Neely, Weller and Dittmar (1997) use genetic programming to find technical trading rules in foreign exchange markets. The rules generated economically significant out-of- sample excess returns for each of six exchange rates, over the period 19811995. Lui and Mole (1998) report the results of a questionnaire survey conducted in February 1995 on the use by foreign exchange dealers in Hong Kong of fundamental and technical analyses. They found that over 85% of respondents rely on both methods and, again, technical analysis was more popular at shorter time horizons. Neely (1998) reconciles the fact that using technical trading rules to trade against US intervention in foreign exchange markets can
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be profitable, yet, longterm, the intervention tends to be profitable. LeBaron (1999) shows that, when using technical analysis in the foreign exchange market, after removing periods in which the Federal Reserve is active, exchange rate predictability is dramatically reduced. Lo, Mamaysky andWang (2000) examines the effectiveness of technical analysis on US stocks from 1962 to 1996 and finds that over the 31-year sample period, several technical indicators do provide incremental information and may have some practical value. Fernandez-Rodrguez, Gonzalez-Martel and Sosvilla-Rivero (2000) apply an artificial neural network to the Madrid Stock Market and find that, in the absence of trading costs, the technical trading rule is always superior to a buy and hold strategy for both bear market and stable market episodes, but not in a bull market. One criticism I have is that beating the market in the absence of costs seems of little significance unless one is interested in finding a signal which will later be incorporated into a full system. Secondly, it is perhaps nave to work on the premise that bull and bear markets exist. Lee and Swaminathan (2000) demonstrate the importance of past trading volume. Neely and Weller (2001) use genetic programming to show that technical trading rules can be profitable during US foreign exchange intervention. Cesari and Cremonini (2003) make an extensive simulation comparison of popular dynamic strategies of asset allocation and find that technical analysis only performs well in Pacific markets. CheolHo Park and Scott H. Irwin wrote The profitability of technical analysis: A review Park and Irwin (2004), an excellent review paper on technical analysis. Kavajecz and OddersWhite (2004) show that support and resistance levels coincide with peaks in depth on the limit order book 1 and moving average forecasts reveal information about the relative position of depth on the book.They also show that these relationships stem from technical rules locating depth already in place on the limit order book. More recently, Lo et al. (2000) examined the prevalence of various technical patterns in American share prices over the period 19621996 and found the patterns to be unusually recurrent.The study does not prove that the patterns are predictable enough to make sufficient profit to justify the risk,but the authors conclude that this is likely.

Chart no: 2.1 Candlestick Explanations

Source : http://www.tradingwinner.com/archive/2006/03/01/a-simple-candlestick-chartguide/

Candlestick was formed by using open, high, low and close.

If the closing price is above the opening price, then candlestick transparent (or usually white) is formed.

If the closing price is below the opening price, then the black candlestick is formed.

The part that is white or black candlestick is called "real body" or just "body". Thin lines that appear above and below the body indicate the range high / low and is also called shadow or tail.

The top of the tail indicates the highest price or "high". The bottom of the tail called the "low" or the lowest price.

Body length indicates that the strong buying or selling. The longer the body, the more intense the pressure to buy or sell. Body is short indicating activity buying or selling a bit. Candlestick with over a longer tail, under a longer tail and smaller body called spinning tops. This pattern indicates the existence of inconsistencies between the buyer and seller. Inverted hammer indicates there is a possibility for the occurrence of reversal when prices are falling. Hanging man is a bearish reversal pattern that can also be used as a sign of the top or resistance level is the strongest.

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CHAPTER 3 METHODOLOGY OF STUDY

This section deals with the actual process adopted to carry out the study. It consists of the universe and place of study, sample selection, data collection and process of data analysis.

3.1 PLACE OF STUDY

The study was carried out in the Axis securities and sales ltd Pune. The ASSL Pune basically looks after all the aspects of Stock broking or trading activities in terms of sales, documentation and activation.

3.2 SAMPLE SELECTION

As per the availability of time Primary Real Time data was limited to March to June so that proper analysis could take place on daily basis. Daily as well as short duration charts were captured for NSE. As far as analysis with secondary data is concerned, relevant period after 1991 is focused at random periods as well during some major events.

3.3 DATA COLLECTION

Primary live data was capture from Real time websites like www.icharts.com on daily basis where as various website has been used for secondary data which mainly pertains to long term analysis.

3.4 DATA ANALYSIS

Data analysis is done on the data collected from Secondary sources. The main technical tools used are Candlesticks Pattern, Trend lines and Fibonacci retracements. Trader must invest after thorough understanding and analysis of Market condition .Market analysis is generally done by getting data from various resources especially current trend and
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movements. Trading activity in equity is done online during market hours from 09:15 to 15:30 IST (Monday to Friday). Generally very sensitive online software like Metastock is being used to see and analyse current day today market movements. Various software tools giving information or indication on market movements which are usually used by technical analysts at High end are as follow Metastock Investar

Even brokerage houses are also providing online trading tools with facilities of trading to their clients as per specific requirements. Analytical aspect is taken care by Technical analyst by looking at the various Technical indicators like Line and Candlesticks charts and Oscillators. Technical analysts know how to read various indicators and interpret how the market will behave in short and long term. So here we will study and analyze secondary and primary data taken from from various Tools and website keeping in mind both long term and short term perspectives. Our study mainly concentrates on nifty charts.

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CHAPTER 4 CONCEPTUAL FRAMEWORK ON TECHNICAL ANALYSIS

The methods used to analyze securities and make investment decisions are largely classified into two broad categories: o Fundamental analysis. o Technical analysis. Fundamental Analysis basically involves analyzing the characteristics of a company in order to estimate its value. Technical analysis takes a completely different prospective; it does not take into consideration about the Value of a company. The technical analysts are only interested in the trends movements of scrip price in the market. It can be said that technical analysis studies extensively the demand and supply of a stock in a market to identify the trend which it will continue in future. In other words, technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components. Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysis do not attempt to measure as securities intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. Just as there are many investment styles on the fundamental side, there are also many different types of technical traders. Some rely on chart patterns others use technical indicators and oscillators and most use some combination of the two. In any case, technical analysts exclusively use historical price and volume data is what separated them from their fundamental counterparts. Unlike fundamental analysts, technical analysts dont take into consideration whether a stock is
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undervalued. The only thing that matters is scrips past trading data and what information this data can provide about where the scrip might move in future. The field of technical analysis is based on three assumptions: o Market discounts everything o Price moves in trends o History tends to repeat itself One of the most important concepts in technical analysis is of trends. The meaning in finance isnt 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.

600 500 5 400 3 300 1 200 100 0 2 4 Share price 6 7

9:30 AM 10:30 AM 11:30 AM 12:30 PM 1:30 PM 2:30 PM 3:30 PM

Chart No: 4.1 Uptrend Above chart is a good example of an uptrend. Point # 3 in the chart is the first high, which is determined after the price falls from this point it finds a support level at point # 4, and the trends continues. For this to remain an uptrend each successive low must not fall or in other words uptrend can be seen if the support levels is successively increasing.

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4.1 TRENDLINE
A line that is drawn over pivot highs or under pivot lows to show the prevailing direction of price. Trendlines are a visual representation of support and resistance in any time frame. Trendlines are used to show direction and speed of price. Trendlines also describe patterns during periods of price contraction.

Up trend

Chart no: 4.2 Trendline

Soucre: ichart.in

Technical analysis is built on the assumption that prices trend. Trend Lines are an important tool in technical analysis for both trend identification and confirmation. A trend line is a straight line that connects two or more price points and then extends into

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the future to act as a line of support or resistance. Many of the principles applicable to support and resistance levels can be applied to trend lines as well.

4.2 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.

Resistance level

Support level

Chart no: 4.3 Resistance and Support Level In the above 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).
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4.3 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.

Chart no: 4.4 Role Reversal In the above given graph (Axis bank BSE quotes) the line is shown as a level of resistance that has prevented the price from heading lower on two previous occasions (Points 1 and 2). However, once the Support is broken, it becomes a level of Resistance (shown by Points 4 and 5) by propping up the price and preventing it from heading lower again.

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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.

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

Chart no: 4.5 Linear Chart

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Chart no: 4.6 Logarithmic Chart

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 5 to 10 is a 100% increase in the price while a move from 20 to 30 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. 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. 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. As the

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analysis will be using more of candle sticks so here is the brief descripion about candlestick charts. Using a semi-log price scale has had the magical affect of turning a curve into a straight line. It is important however, if we are going to use the semi-log function in our charting programs, to understand at a conceptual level what we are doing. When we look at a conventional chart we are observing the Change in price with respect to the Change in time. When we look at a logarithmic chart we are looking at the Proportional change in price with respect to the Change in time. We use Proportional change in price to observe market sentiment. Market participants move share prices either up or down proportionally depending on how bullish or bearish they feel. Imagine that a group of people were so keen on a share that they bought up the share price from INR 10 to INR 20 in one month. Now imagine that the same group of people were just as enthusiastic about the same share when its price was INR 50. They would move the price from INR 50 to INR 100 in one month. The first price movement is INR 10 in one month and the second price movement is INR 50 in one month. But both price movements are proportionally the same at 100% in one month. This equal proportionality tells us that market sentiment is the same in both cases even though the Change in price in each case is different. We can also add to this body of evidence the observation that when price moves sideways over time then sentiment is obviously neutral. When we analyze logarithmic charts our interest is of a qualitative nature and not a quantitative one. We are using the gradient of the curve to observe market sentiment. If price activity curves upwards then market sentiment is improving and when it curves downwards market sentiment is falling. If price activity moves sideways then market sentiment is neutral and when the price activity moves in a straight line then sentiment is constant. We can therefore conclude that market participants are almost as bullish on Cochlear in early 2001 as they were back in 1998.

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4.5 CANDLESTICK CHARTS

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. And, like bar charts, candlesticks also rely heavily on the use of colors to explain what has happened during the trading period. A major problem with the candlestick color configuration, however, is that different sites use different standards; therefore, it is important to understand the candlestick configuration used at the chart site you are working with. 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 days 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.

Chart no: 4.7 Candlestick Chart

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Charts are one of the most fundamental aspects of technical analysis. It is important that you clearly understand what is being shown on a chart and the information that it provides. Now that we have an idea of how charts are constructed, we can move on to the different types of 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. 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.

4.6 PATTERNS
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. We will now move on to other technical techniques and examine how they are used by technical traders to gauge price movements. Most chart patterns show a lot of variation in price movement. This can make it difficult for traders to get an idea of a security's overall trend. One simple method traders use to combat this is to apply moving averages. A moving average is the average price of a security over a set amount of time. By plotting a security's average price, the price movement is smoothed out. Once the day-to-day fluctuations are removed, traders are better able to identify the true trend and increase the probability that it will work in their favor.

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4.7 MOVING AVERAGES

Another method of determining momentum is to look at the order of a pair of moving averages. When a short-term average is above a longer-term average, the trend is up. On the other hand, a long-term average above a shorter-term average signals a downward movement. Moving average trend reversals are formed in two main ways: when the price moves through a moving average and when it moves through moving average crossovers. The first common signal is when the price moves through an important moving average. For example, when the price of a security that was in an uptrend falls below a 50-period moving average, like in Figure below, it is a sign that the uptrend may be reversing.

Chart no: 4.8 Simple Moving Average Chart The other signal of a trend reversal is when one moving average crosses through another. For example, as you can see in Figure below, if the 15-day moving average crosses above the 50-day moving average, it is a positive sign that the price will start to increase.

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4.7.1 SIMPLE MOVING AVERAGE

A simple moving average is formed by computing the average price of a security over a specific number of periods. Most moving averages are based on closing prices. A 5-day simple moving average is the five day sum of closing prices divided by five. As its name implies, a moving average is an average that moves. Old data is dropped as new data comes available. This causes the average to move along the time scale. Below is an example of a 5-day moving average evolving over three days. Daily Closing Prices: 11,12,13,14,15,16,17 First day of 5-day SMA: (11 + 12 + 13 + 14 + 15) / 5 = 13 Second day of 5-day SMA: (12 + 13 + 14 + 15 + 16) / 5 = 14 Third day of 5-day SMA: (13 + 14 + 15 + 16 + 17) / 5 = 15 The first day of the moving average simply covers the last five days. The second day of the moving average drops the first data point (11) and adds the new data point (16). The third day of the moving average continues by dropping the first data point (12) and adding the new data point (17). In the example above, prices gradually increase from 11 to 17 over a total of seven days. Notice that the moving average also rises from 13 to 15 over a three day calculation period. Also notice that each moving average value is just below the last price. For example, the moving average for day one equals 13 and the last price is 15. Prices the prior four days were lower and this causes the moving average to lag.

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Chart no: 4.9 Simple Moving Average Chart

4.7.2 EXPONENTIAL MOVING AVERAGE

Exponential moving averages reduce the lag by applying more weight to recent prices. The weighting applied to the most recent price depends on the number of periods in the moving average. There are three steps to calculating an exponential moving average. First, calculate the simple moving average. An exponential moving average (EMA) has to start somewhere so a simple moving average is used as the previous period's EMA in the first calculation. Second, calculate the weighting multiplier. Third, calculate the exponential moving average. The formula below is for a 10-day EMA. SMA: 10 period sum / 10 Multiplier: (2 / (Time periods + 1) ) = (2 / (10 + 1) ) = 0.1818 (18.18%) EMA: {Close - EMA(previous day)} x multiplier + EMA(previous day).

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A 10-period exponential moving average applies an 18.18% weighting to the most recent price. A 10-period EMA can also be called an 18.18% EMA. A 20-period EMA applies a 9.52% weighing to the most recent price (2/(20+1) = .0952). Notice that the weighting for the shorter time period is more than the weighting for the longer time period. In fact, the weighting drops by half every time the moving average period doubles. If you want to us a specific percentage for an EMA, you can use this formula to convert it to time periods and then enter that value as the EMA's parameter: Time Period = (2 / Percentage) - 1 3% Example: Time Period = (2 / 0.03) - 1 = 65.67 time periods

Chart no: 4.10 Exponential Moving Average Chart

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4.7.3 EMA AND SMA CROSSOVER

CROSSOVER

Chart no: 4.11 Exponential And Simple Moving Average Crossover Chart

If the periods used in the calculation are relatively short, for example 15 and 35, this could signal a short-term trend reversal. On the other hand, when two averages with relatively long time frames cross over (50 and 200, for example), this is used to suggest a long-term shift in trend.

4.8 OTHER IMPORTANT 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
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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. 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.

4.8.1 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
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momentum. 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 Figure following, 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.

Chart no: 4.12 Moving Average Convergence and Divergence Chart

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4.8.2 RELATIVE STRENGTH INDEX

The relative strength index (RSI) 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 securitys price has been unreasonably pushed to current levels and whether a reversal may be on the way. The below given example is of MRF where we can easily see the areas where there was a region of overbought and oversold.

Overbought

Oversold

Chart no: 4.13 Relative Strength Index Chart (Overbought and Oversold)

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.

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One of the most popular technical analysis indicators, the Relative Strength Index (RSI) is an oscillator that measures current price strength in relation to previous prices. The RSI is a versatile tool, it can be used to:

Generate buy and sell signals Show overbought and oversold conditions Confirm price movement Warn of potential price reversals through divergences

RSI Buy Signal Buy when the RSI crosses above the oversold line (30). RSI Sell Signal Sell when the RSI crosses below the overbought line (70). Varying the time period of the Relative Strength Index can increase or decrease the number of buy and sell signals. In the chart below of Gold, two RSI time periods are shown, 14-day (default) and 5-day. Notice how decreasing the time period made the RSI more volatile, increasing the number of buy and sell signals substantially.

4.8.3 OVERBOUGHT
In technical analysis, this term describes a situation in which the price of a security has risen to such a degree - usually on high volume - that an oscillator has reached its upper bound. This is generally interpreted as a sign that the price of the asset is becoming overvalued and may experience a pullback. Technicians use indicators such as the relative strength index, the stochastic oscillator or the money flow index to identify securities that are becoming overbought.

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An asset that has experienced sharp upward movements over a very short period of time is often deemed to be overbought. Determining the degree in which an asset is overbought is very subjective and can differ between investors.

3.8.4 OVERSOLD
A situation in technical analysis where the price of an asset has fallen to such a degree usually on high volume - that an oscillator has reached a lower bound. This is generally interpreted as a sign that the price of the asset is becoming undervalued and may represent a buying opportunity for investors. Identifying areas where the price of an underlying asset has been unjustifiably pushed to extremely low levels is the main goal of many technical indicators such as the relative strength index, the stochastic oscillator, the moving average convergence divergence and the money flow index. Assets that have experienced sharp declines over a brief period of time are often deemed to be oversold. Determining the degree to which an asset is oversold is very subjective and could easily differ between investors.

4.8.5 STOCHASTIC
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.

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Chart no: 4.14 Stochastic Chart Stochastic RSI Buy Signal Buy when the Stochastic RSI crosses above the Oversold Line (20). Stochastic RSI Sell Signal Sell when the Stochastic RSI crosses below the Overbought Line (80). The Stochastic RSI is an effective and potentially profitable use of the popular Stochastic indicator and RSI indicator.

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4.8.6 MONEY FLOW INDEX

The Money Flow Index (MFI) uses price and volume and the concept of accumulation distribution to create an overbought and oversold indicator that is helpful in confirming trends in prices and warning of potential reversals in prices. The inputs to the Money Flow indicator are given below: 1. Typical Price: (High + Low + Close) / 3 2. Money Flow: Typical Price x Volume 3. Positive Money Flow: The Money Flow on days where the Typical Price is greater than the previous day's Typical Price. 4. Negative Money Flow: The Money Flow on days where the Typical Price is less than the previous day's Typical Price. 5. Money Ratio: Positive Money Flow / Negative Money Flow 6. Money Flow Index: 100 - [100 / (1 + Money Ratio)]

The Money Flow Index includes both price and volume in its calculation. If the average price for the day is higher than yesterday then the Money Flow is positive and added to the indicator, while if the average price is lower than yesterday the Money Flow is negative and subtracted from the indicator. The exact calculation of the Money Flow Index is very similar to the calculation of the relative Strength Index (RSI) with volume included. The Money Flow Index will fluctuate between 0 and 100, but will never reach the extreme levels.

The most common interpretation of the indicator is as an overbought/oversold indicator. This is denoted when the indicator moves above or below the reference level. In the chart below of Commonwealth Bank the Money Flow Index reference levels are shown at 20 and 80 as blue lines on the charts. When the price moves beyond these levels the price reaches an overbought or oversold condition and a reversal in the price is likely. Here we

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can clearly see that for two instances the Scrip of AXISBANK reached the Levels of 80 and 20. Which can be also referred to as the Overbought and Undersold Region.

Chart no: 4.15 Money Flow Index Chart Interpreting the Money Flow Index

Below 20 is considered oversold; look for buying opportunities. Above 80 is in overbought territory; look for sell signals.

In the chart above of AXISBANK, the downtrend in price was confirmed by the downtrend in the Money Flow Index. Once the MFI entered the oversold area, traders would be advised to begin to reduce their short sell positions and buy to cover.

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Later, the price of Axis bank increased, and the MFI indicator confirmed that increase. This is a signal that the trend in Axis Bank still has buying pressure and that the stock trader should continue holding their long position in the stock. In additon to being an excellent confirmation tool, the Money Flow Index can warn of potential price reversals.

4.8.7 PRICE OSCILLATOR

The Price Oscillator uses two moving averages, one shorter-period and one longerperiod, and then calculates the difference between the two moving averages. The Price Oscillator technical indicator can be used to determine overbought and oversold conditions as well as to confirm bullish or bearish price moves.

Chart no: 4.16 Price Oscillator Chart

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When the 9-day moving average crossed over the 18-day moving average, the Price Oscillator crossed over the zero line. When a short-term moving average crosses over a long-term moving average, a bullish crossover occurs. Usually bullish crossovers are considered to be a good time to buy. Likewise, when the 9-day moving average crossed below the 18-day moving average, the Price Oscillator crossed below the zero line. When a short-term moving average crosses below a long-term moving average, a bearish crossover occurs. Usually bearish crossovers are considered to be a good time to sell. The Price Oscillator makes it easy to see moving average crossovers. The Price Oscillator is also a means to detect overbought and oversold conditions

4.8.8 PRICE VOLUME TREND

Price Volume Trend combines percentage price change and volume to confirm the strength of price trends or through divergences, warn of weak price moves. Unlike other price-volume indicators, the Price Volume Trend takes into consideration the percentage increase or decrease in price, rather than just simply adding or subtracting volume based on whether the current price is higher than the previous day's price. How the formula is calculated is presented below: 1. On an up day, the volume is multiplied by the percentage price increase between the current close and the previous time-period's close. This value is then added to the previous day's Price Volume Trend value. 2. On a down day, the volume is multiplied by the percentage price decrease between the current close and the previous time-period's close. This value is then added to the previous day's Price Volume Trend value. The Price Volume Trend indicator is usually interpreted as follows:

Increasing price accompanied by an increasing Price Volume Trend value,confirms the price trend upward.
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Decreasing price accompanied by a decreasing Price Volume Trend value,confirms the price trend downward.

Increasing price accompanied by a decreasing or neutral Price Volume Trendvalue is a divergence and is indicating that the price movement upward is weak and lacking conviction.

Decreasing price accompanied by a increasing or neutral Price Volume Trendvalue is a divergence and is indicating that the price movement downward is weak and lacking conviction.

Chart no: 4.17 Price and Volume Trend Chart

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High #5 to High #6 Axis bank stock made lower highs, but the Price Volume Trend indicator made higher highs. This bullish divergence warned that bulls might be taking control of the stock and shorting AXIS BANK would not be advisable. Since the Price Volume Trend indicator multiplies positive volume when prices close higher than the previous day's close, the Price Volume Trend indicator could be interpreted as meaning that more volume flowed into High #6 than flowed into High #5. More volume interest by buyers at High #5 signaled that the price move higher had significant strength behind it and it probably was going to continue. Low #3 to Low #4 The stock price made higher lows, generally considered a bullish signal; the Price Volume Trend indicator confirmed this move higher when it made higher highs as well. Price Volume Trend is a valuable technical analysis tool that combines both price and volume to confirm price action or warn of potential weakness or lack of conviction by buyers and sellers. Other similar indicators that should be investigated further are the Chaikin Oscillator and the Money Flow Index.

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4.9 ANALYSIS 4.9.1 TRENDLINES

Here we have nifty line chart from 01/10/2012 to 01/02/2013 showing market behaviour in long term with the help Trendline as indicator. So a long term investor can get selling and buy signal by studying trendlines. We can also observe the cyclic up and down movement in the scrip in 04 months. Here we can see that at 01/11/12 the scrip price is around 1150. The graph clearly shows that the prices have been increasing and as on date 1475.So trendline speak a lot about price movement in long term which is clearly evident from the line graph.

Chart no: 4.17 Trendline Chart

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4.9.2 VOLUME
Along with trendlines volume movement is also used as indicator which generally confirms the move of the market as a indicator.

Chart no: 4.19 Volume Chart Here the line graph shows an upward movement 2010 onwards with the help of trend line which is clearly being confirmed by rising volume. Also fall in volume during Dec 12 Jan 13 predicted the fall of market in near future. So we can say that volume also plays important role as confirmatory indicator along with upward or downward trend. Importance of Volume when Analyzing Price Movements The following is an extreme illustration of the importance of volume:

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A buyer places a market buy order after hours for 10 shares of stock. The transaction occurs one dollar above the closing price. Therefore, the one dollar price move had 10 shares worth of interest from a buyer.

A buyer places a buy order for 100,000 shares of stock. This transaction takes place at a price that is one dollar above the current price.

Which example is more bullish? They both increase the last transaction price by one dollar. If a trader didn't use volume, he/she would think that the move was identical from a price chart perspective. Of course, the second example is more bullish because the one dollar more the buyer of the 100,000 shares is willing to pay is significant (the buyer is bullish and is taking a large bet to prove it); whereas, in the second example, 10 shares is insignificant. Increases or decreases in price along with increased volume isn't always confirming of trend.

4.9.3 EXPONENTIAL MOVING AVERAGES

Exponential Moving Averages calculated with short and long period also gives vital information about nifty movements and reversal signals thus providing information about when to enter or exit market. Long and short term EMA Crossover gives buy and sell signal as evident from the chart.

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Chart no: 4.20 Exponential Moving Average Chart

4.9.4 CANDLESTICK PATTERN

Below shows highly volatile market period between April 2013 and July 2013.This period has been a very volatile period full of major events. After a downward rally which is shown by percentage retracement from 1350 Rs/ Share to 850 Rs/Share within 4 months, market became range bound for almost 4 months and again.

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Chart no: 4.21 Candlestick Chart

4.9.5 RESISTANCE AND SUPPORT

After downward or upward movements many a time market movements become sluggish on both upward and downward direction, such type market is called range bound market. Here we can see from the chart below that market is range bound between Jan 2012 and May 2012 though both side of this period market remained highly volatile.

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Chart no: 4.22 Resistance and Support Level Chart

Here from the candlesticks chart Hammer formation after downward rally indicated reversal of the market move. After this market moved in range with lower support at 1100 INR per Share and upper resistance at 1290 INR per Share. But the breaking of Lower Support level during end of May confirmed the downward rally.

4.9.6 OSCILLATORS
Oscillators like Relative Strength Index (RSI), MACD and Stochastic are also prominently used for confirmation of moves given by Trends .Especially when market becomes range bounds and moves sideways in low range, it is prudent to use oscillators for Buying and selling signals. As seen from the graph below for range bound market,

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indicators like RSI, MACD and Stochastics gives frequent indication of buying or selling. So to be on safer side in such market one should use Oscillators in such markets.

Chart no: 4.23 Oscillators Chart (Chaikin Oscillator and MACD) An oscillator which measures the accumulation distribution line of the MACD. The Chaikin Oscillator is calculated by subtracting a 10-day EMA from a 3-day EMA of the accumulation distribution line, and outlines the momentum implied by the accumulation distribution line.

Chart no: 4.24 Oscillator Chart (MACD and Stochastic)

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A technical momentum indicator that compares a security's closing price to its price range over a given time period. The oscillator's sensitivity to market movements can be reduced by adjusting the time period or by taking a moving average of the result. This indicator is calculated with the following formula:

%K = 100[(C - L14)/(H14 - L14)]

C = the most recent closing price L14 = the low of the 14 previous trading sessions H14 = the highest price traded during the same 14-day period. %D = 3-period moving average of %K

4.9.7 FIBONACCI AND PERCENTAGE RETRACEMENT

If we critically analyze market in the near term from 01st May to 15th Sep, it had clearly followed Fibonacci retracement by retracing from 50 % to 61.8% gaining almost 200 points near 4th May and then again retracing from 0 % to 50 % with gain of 250 Rs. We can also see that according to the febonacci retracement theory the negative retracement can also be seen in the graph.Thus we see here that such events of uncertainty can lead to anything ,heavy gains as well as heavy losses if speculations are wrong but technicals like Fibonacci retracement give the clear picture of risk quantum.

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Chart no : 4.25 Febonacci Retracement Chart

4.9.8 CANDLESTICKS
Candlesticks pattern is highly sophisticated technique where specific patterns of candles in a candlestick chart are identified which give prior indication of market movements. Here we have captured some real time daily data on candlestick charts and market movement analysis has been made accordingly.

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Chart no: 4.26 Candlestick Analysis

4.9.9 CANDLESTICK WITH PIVOT POINTS

A pivot point analysis is often used in conjunction with calculating support and resistance levels, similar to a trend line analysis. In a pivot point analysis, the first support and resistance levels are calculated by using the width of the trading range between the pivot point and either the high or low prices of the previous day. The second support and resistance levels are calculated using the full width between the high and low prices of the previous day.

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The blue line indicates the Pivot point

Chart no: 4.27 Candlestick and Pivot Points

4.9.10 CANDLESTICK WITH EMA AND SMA

In this we observe that its very simple to analyse and intpret Candlestick charts and thus thus providing valuable insight to investor. Finally we see that various indicators used being used in Technical analysis of stock market are very helpful to make critical decision about investment timings with preciseness.

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Chart no: 4.28 Candlestick with EMA and SMA

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CHAPTER 5 CONCLUSION

5.1 FINDINGS OF THE STUDY

It is observed from the analysis of the primary data that Technical analysis is of great significance while investing in equities or commodities. It provides right signal at right time in most of the cases. Use of various indicator makes the analytical task a lot easier and thus help greatly in indecisive times. As observed during various major events like Election, Budget etc one must be very cautious and should Technical indicators keeping in mind short term perspective. Besides this, trend along with confirmation from volume activities and Oscillators provide buying and selling signal especially from long term perspective.

5.2 RECOMMENDATIONS
Technical analysis is helpful in more than 80% cases but still there is need to decide trade off between profit and loss. So investment must be done prudently. Risk should be minimized while uncertain period by hedging your investment or keeping away from market during volatile times if we are not sure of which way the market will move. Generally when market becomes range bound and we are not in position to find out which way the market will move, we should liquidate our positions. We should always keep in mind whether we are investing for long term or short term and accordingly we should analyze the situation. For short term, along with trend we must also look for what the confirmatory indicator say. Along with Technical analysis, one must keep track records of Fundamental analysis as it makes overall analysis more precise.

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5.3 LIMITATIONS AND FURTHER SCOPE OF STUDY

Time scale for data used is more than 10 min ,so for better results time scale must be minimized to minimum possible so that very sensitive results can be produced. Due to Limited resources and limited time analysis remained confined to Nifty index and to random small sample, so analysis may not exactly same for the whole population. Further study can be taken up by exploring different industrial sector along with Nifty and sample horizon could be increased to maximum possible. Raw data should be extracted from more advanced trading tools like Metastock so that sensitivity and accuracy of analysis could be maximized.

CHAPTER NO 6
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BIBLIOGRAPHY

WEBSITES: http://www.nse-india.com/
http://www.icharts.in/

www.bseindia.com www.tradingstocks.com www.economictimes.com www.icai.org www.investopedia.com http://www.akpinsight.webs.com

OTHER REFERENCES
Donald E. Fisher and Ronald J. Jordan, Security Analysis And Portfolio Management. V.A. Avadhani, Investment and Security Markets In India. Getting Started in Technical Analysis" 1999 Jack D. Schwager. Taylor, Mark P., and Helen Allen (1992). "The Use of Technical Analysis in the Foreign Exchange Market," Journal of International Money and Finance. V.K. Bhalla Investment Management: Security Analysis And Portfolio Management. John J. Murphy, Technical Analysis of the Financial Markets.

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