1

A Summer Training Project Report

On

TECHNICAL ANALYSIS
OF NIFTY


(An industry internship project report submitted in partial
fulfillment of the requirement of Post-Graduate Diploma in
Management 2013-15)
UNDER THE GUIDANCE OF: - SUBMITTED BY: -
Corporate Guide:
Mr. M.NAGEER AHMED K MADHAVARAO
(sales Manager) PGDM
India Infoline Limited BIFAAS
ROLL NO. B7-12
Faculty Guide:
DR.N C RAJYA LAKSHMI
PROFESSOR
(Masters in finance, Ph.D.,)
Siva Sivani Institute of Management






2

TABLE OF CONTENTS





Sl. No.
Particulars
Pg. No.
1 DECLARATION 3
2
ACKNOWLEDGEMENT
4
3
CERTIFICATE

5
4 Executive Summary

6
5 REVIEW OF LITERATURE

7
6 INTRODUCTION


8-18
7 ABOUT THE TOPIC

19
8 SEBI 20-23
9 CNX NIFTY

23-25
10 DOW THEORY

26-27
11 Analyzing Chart Patterns

28-44
12 Method 0f technical analysis

44
13 Limitations of Technical Analysis

45
14 Technical Analysis OF NIFTY

45-53
15 Conclusion

53-55
16 BIBLIOGRAPHY

56
3




DECLARATION



This is to certify that the project title: TECHNICAL ANALYSIS
OF NIFTY is a bonafide work completed by K MADHAVARAO,
Enrollment Number B7-12, in partial fulfillment of the requirements of the
PGDM Program and submitted to SIVA SIVANI INSTITUTE OF
MANAGEMENT- SECUNDERABAD.

I declare that this project is a result of my own efforts and has not
been copied from any source. References from which information has been
taken have been given in the references section.

This work has not been submitted earlier at any other university or
institute for the award of the degree.

K MADHAVARAO
B7-12
SIVA SIVANI INSTITUTE OF MANAGEMENT
SECUNDERABAD














4










ACKNOWLEDGEMENTS

It is my privilege to thank and express my heartfelt gratitude to my company guide MR.
MOHOMMED NAGEER AHEMED sales manager , India Infoline Ltd. for his
constant guidance and supervision throughout the course of my internship. I would like
to express my heartiest gratitude to India Infoline for giving me an opportunity to work at
corporate office, situated in Hyderabad without which I would never have got a real time
practical experience in this field . I also want to express my profound gratitude to my
faculty guide DR. N.C. RAJAYALAKSHMI for her constant and cordial support and
providing information which helped me in completing my project. I am highly obliged to
rest of staff members for giving their time and cooperation in providing information
during the course of my project at the at the end. I would thank my parents for their
constant encouragement without which this project would have not been impossible.


















5



CERTIFICATE





























6


Executive Summary

In the days of technology advancement and increasing use of computers for trading and
investing, Algorithm trading has become the present trend in the markets. There is much
software present in the markets that will enable the trader to buy, sell and implement the
strategies that he has designed to be profitable. The prime goal of a trader in a Future and
Options segment is to be profitable and sue to the increasing efficiency of the markets he
has to be quick to identify opportunities and utilize them. One can do it using technical
analysis and fundamental analysis. If the trader is short and medium term or an
arbitrageur then his own skills are not enough to identify and trade on various derivatives
in various markets. This is where algorithmic trading comes into picture, but while using
algorithm trading the system must be able to identify its entry points and exit points. This
is done using technical analysis. When the entry and exit is done through technical
conditions it is very important to understand which technical indicators work the best in
the markets and how efficient are they in making the profits. This study is done to
understand what extent the technical analysis is working in the markets and what type of
indicators should be used for ranging markets and trending markets. The technical
indicators such as Relative Strength Index, Moving Average Convergence Divergence,
Slow Stochastic, Fast Stochastic, Average Directional Index, Bollinger Bands and
Average True Range are tested on the market for a period of 5 years time from 2008 to
2014 on CNX NIFTY. Their efficiency, profits losses and profit factor were understood
in this report by using tradestation software. In short we are buying and selling NIFTY
itself.










7

REVIEW OF LITERATURE

Technical analysis is also often combined with quantitative analysis and economics. For
example, neural networks may be used to help identify inter-market relationships .A few
market forecasters combine financial astrology with technical analysis. Chris Carolan's
article "Autumn Panics and Calendar Phenomenon," which won the Market Technicians
Association Dow Award for best technical analysis paper in 1998, demonstrates how
technical analysis and lunar cycles can be combined. The S & P CNX Nifty index is a
free float market capitalisation weighted index. The index was initially calculated on full
market capitalisation methodology. From June 26, 2009, the computation was changed to
free float methodology. The base period for the S&P CNX Nifty index is November 3,
1995, which marked the completion of one year of operations of NSE's Capital Market
Segment. The base value of the index has been set at 1000, and a base capital of Rs 2.06
trillion (S&P CNX Nifty Index Methodology). The S&P CNX Nifty Index was
developed by Ajay Shah and Susan Thomas.




























8

INTRODUCTION
IIFL was founded in 1995 by Mr. Nirmal Jain (Chairman and Managing Director) as an
independent business research and information provider. It gradually evolved into a
financial services solution provider. IIFL has a network of 4000 business locations
spread over more than 900 cities and towns across India.
IIFL is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange of
India (NSE) for securities trading; with MCX, NCDEX and DGCX for commodities
trading; and with CDSL and NSDL as depository participants. IIFL is registered as a
Category I merchant banker and is a SEBI registered portfolio manager.
Location Mumbai
Corporate office IIFL Centre, Lower Parel
Registered office
IIFL House, Sun Infotech Park, Road No. 16V, Plot No. B-23, Thane
Industrial Area, Wagle Estate, Thane, Maharashtra 400604
Year of
incorporation
1995
Industry Financial Services
Key businesses
Credit & Finance, Wealth Management, Financial Product
Distribution, Capital Market Related
Employees 14,000+
Business locations Around 4,000 locations in 900 cities and towns
Global reach
Singapore, Dubai, New York, Mauritius, UK, Hong Kong,
Switzerland
Listings NSE, BSE
Listing date 17 May, 2005
Registrars Link Intime India Pvt. Ltd.
Short term debt
rating
CRISIL A1+ & ICRA (A1+)
Long term debt
rating
CARE AA & Brickwork BWR AA (Outlook: Stable).
Domains
www.indiainfoline.com, www.iiflfinance.com,
www.ttweb.indiainfoline.com, www.flame.org.in
Financials: As on March, 2013
Net Worth Rs. 1310.03 crores
Total Assets Rs. 1310.03 crores
Total Liabilities Rs. 1310.03 crores
Net Profit Rs. 95.81 crores
9

IIFL Group is a leading financial services company in India, promoted by first generation
entrepreneurs. It has a diversified business model that includes credit and finance, wealth
management, financial product distribution, asset management, capital market advisory
and investment banking. Its evolution from an entrepreneurial start-up to a market
leadership position is a story of steady growth by adapting to the changing environment,
without losing the focus on its core domain of financial services. Its NBFC and lending
business accounts for 68% of their consolidated income in FY13 and has a diversified
product portfolio rather than remaining a mono-line NBFC. They are a leader in
distribution of life insurance and mutual funds among non-bank entities. Although the
share of equity broking in total income was only 13% in FY13, IIFL continues to remain
a leading player in both, retail and institutional space.
Vision
To become the most respected company in the financial services space in India
Values
Values are IIFL are summarised in one acronym: GIFTS
Growth with focused team of dynamic professionals
Integrity in all aspects of business no compromise in any situation
Fairness in all our dealings employees, customers, vendors and shareholders all
included
Transparency in what we do and in how and why we do it
Service orientation is our core value, imbibed by all sales as well as support teams
Business strategy
Steady growth by adapting to the changing environment, without losing the focus
on our core domain of financial services
De-risked business through multiple products and diversified revenue stream
Knowledge is the key to power superior financial decisions
Keep costs low and continuously strive for innovation
Customer strategy
Remain largely a retail focused organisation, driving stickiness through
knowledge and quality service
Cater to untapped areas in semi-urban and rural areas, which is relatively safe
from cut-throat competition
10

Target the micro, small and medium enterprises mushrooming across the country
through a cluster approach for lending business
Use wide multi-modal network serving as one-stop shop to customers
Strategy People
Attract the best talent and driven people
Ensure conducive merit environment
Liberal ownership-sharing

Strengths of IIFL:
Managerial depth
The promoters individually are first-generation . Indian entrepreneurs with meritorious
academic backgrounds and impeccable professional careers. Mr. Nirmal Jain, Chairman,
is a rank holder Chartered Accountant, Cost Accountant and an MBA from IIM
Ahmedabad and Mr. R. Venkataraman, Managing Director, is an Electronics Engineer
from IIT Kharagpur and an MBA from IIM Bangalore. The Promoters have built the
business from scratch, without pedigree of a large family business or inherited wealth
and steered it towards a market leading position by dint of hard work and enterprise.
It has consistently attracted the best of the talent from across the financial sector private
sector banks, foreign banks, public sector banks and established NBFCs. The senior
management team have years of experience and backgrounds similar to promoters and
leads competent teams. IIFL has uninterrupted history of profits and dividends since
listing. It has delivered total shareholder returns of 34.3% CAGR from listing till March
31, 2013.
Governance
The Promoters have demonstrated an exemplary track record of governance and utmost
integrity. There have been no notable regulatory strictures or oversight ever in the
groups history. This is despite a widespread and broad range of operations governed by
multiple regulators including RBI, SEBI, IRDA, FMC and NHB. In addition, it has eight
licensed subsidiaries in major global financial centres.
The Board has independent directors, highly respected for their professional integrity as
well as rich financial and banking experience and expertise. It has an advisory board
comprising stalwarts with long and immaculate careers in banks, public service and legal
profession.
None of the promoters family members has held managerial or board position or have
related-party or financial transaction of any significance, since listing. Further, it has not
lent to any related party or associated concerns. The promoters do not have any other
11

business interests and are committed to the core business of financial services under the
IIFL umbrella.
People
The people form the backbone of the organization and are the foundation of its success. It
has significant ownership by employees with a credo of owners work, workers own,
which has enabled it to maintain a highly motivated staff driven by owner mindset. It
creates owners out of its employees not just by offering a financial stake but also through
autonomy to take decisions, make mistakes and grow confidence, competence and career.
Knowledge
IIFL is a knowledge driven organization and has over the years developed and
institutionalized knowledge about its businesses at all the levels.
The roots are in original research on economy, sectors, companies, capital markets and
global financial trends. Its in-house research capabilities gives an edge in understanding
industry trends, macro-economic situations, business cycles, inflation and interest rate
trends, technological changes, regulatory and legal updates, environmental factors
impacting labour, raw material supply, pollution norms and for intermediate products-
trends in end user sectors and for consumption products- trends in customers habits.
It has strong origination and KYC processes across its businesses to get deep
understanding of customers needs and profile.
Innovation
It has successfully executed a number of innovative and disruptive ideas in the financial
services industry to rise from a start-up to leadership position in less than two decades.
For instance:
IIFL gave away all their research free on indiainfoline.com and acquired millions
of readers
It pioneered online trading and revolutionized broking at lowest rate of 5 basis
points
It inducted a high profile institutional team from a foreign brokerage house in a
first of its kind deal in Indian broking industry

Distribution reach
It is present in around 4,000 business locations across more than 900 cities in India. Its
global footprint covers Colombo, Dubai, New York, Mauritius, London, Geneva and
Singapore.
12

De-risked business
IIFL has a de-risked and diversified business model across multiple revenue streams.
It offers multiple products across all segments of financial services.
Risk management
The basis of the risk management and hence the sustainability is its underlying
conservatism. The objective of its risk management process is to insulate the company
from risks associated with the business while simultaneously creating an environment
conducive for growth. Its ability to manage organizational risk cascades from its board of
directors, comprising professionals with rich and varied experience. The risk appetite
defined by the board is reflected in its business plans and integrated into its operations.
It continuously strengthens its risk measurement tools customized to the nature of each
business segment. Many critical decision levels for investments, major lending and
policy initiatives are institutionalized through appropriate committees.
Well capitalized
The Group has net worth of around Rs20 billion.The company has a significantly
unutilized capacity to leverage.
Technology
Right from inception, IIFL has incubated and developed next generation technology for
its core businesses. IIFLs front office software is seamlessly integrated to a highly
automated proprietary back office, risk management and MIS software.
IIFL Trader Terminal is an entirely home grown proprietary technology, which allows
trading in Equities Cash & Derivatives, Commodities, Forex, Mutual Funds, NFOs and
IPOs on a single screen.
Customer service
Its existing customer service organization has evolved with the singular goal since
inception that its customer experience should be the best. It offers services through
multiple customer touch-points such as personal interaction at its offices, call centre,
email, and online web-based interface. It has made significant investment in systems,
technology, people and their training, to ensure high service standards. It has also won an
award for Best Customer Service in Financial Services 2013. Some key elements of its
service approach are first time right and lightning fast response time. It has taken
several proactive steps to reduce the incidence of grievances.


13

Management IIFL:
Name Designation
Mr. Nirmal Jain Chairman
Mr. A K Purwar Independent Director
Mr. Nilesh Vikamsey Independent Director
Mr. Sunil Kaul Non Executive Director
Mr. R Venkataraman Managing Director
Mr. S Narayan Independent Director
Mr. Kranti Sinha Independent Director
14

Corporate Structure:


Productline:
Equity:
IIFL is a member of BSE and NSE registered with NSDL and CDSL as a depository
participant and provides broking services in the cash, derivatives and currency segments,
online and offline. IIFL is a dominant player in the retail as well as institutional segments
of the market. It became the first Indian broker to get a membership of the Colombo
Stock Exchange and is also the first Indian broker to have received an in-principal
approval for membership of the Singapore Stock Exchange. Investors opt for IIFL given
its unique combination of superior service, cutting-edge proprietary technology, advice
powered by world-acclaimed research.
15

IIFL has rapidly emerged as one of the premier institutional equities houses in India with
a team of research analysts, a full fledged sales and training team coupled with an
experienced investment banking team.
Commodities:
IIFL offers commodities trading to its customers vide its membership of the MCX and
the NCDEX. Our domain knowledge and data based on in depth research of complex
paradigms of commodity kinetics, offers the customers a unique insight into behavioral
patterns of these markets. Its customers are ideally positioned to make informed
investment decisions with high probability of success.
Credit and Finance:
IIFL offers a wide array of secured loan products. Currently, secured loans (mortgage
loans, margin funding, loans against shares) comprise 94% of the loan book. It has robust
credit processes and collections mechanism resulting in overall NPAs of less than 1%.
The company has deployed proprietary loan-processing software to enable stringent
credit checks while ensuring fast application processing. Recently the company has also
launched loans against Gold.
Insurance:
IIFL entered the insurance distribution business in 2000 as ICICI Prudential Life
Insurance Co. Ltds corporate agent. Later, it became an Insurance broker in October
2008 in line with its strategy to have an open architecture model. The company now
distributes products of major insurance companies through its subsidiary India Infoline
Insurance Brokers Ltd. Customers can choose from a wide bouquet of products from
several insurance companies including Max New York Life Insurance, Metlife, Reliance
Life Insurance, Bajaj Allianz Life, Birla Sunlife, Life Insurance Corporation, Kotak Life
Insurance and others.
Wealth Management Service:
IIFL offers private wealth advisory services to high-net-worth individuals and corporate
clients under the IIFL Private Wealth brand. IIFL Private Wealth is managed by a
qualified team of MBAs from IIMs and premier institutes with relevant industry
experience. The team advises clients across asset classes like sovereign and quasi-
sovereign debt, corporate and collateralized debt, direct equity, ETFs and mutual funds,
third party Portfolio Management Services (PMS), derivative strategies, real estate and
private equity. It has developed innovative products structured on the fixed income
side.It also has tied up with Interactive Brokers LLC to strengthen its executive platform
and provide investors with a global investment platform.

16

Investment Banking;
IIFLs investment banking division was launched in 2006. The business leverages upon
the strength of research and placement capabilities of the institutional and retail sales
teams. The experienced investment banking team possesses the skill set to manage all
kinds of investment banking transactions. Our close interaction with investors as well as
corporates helps understand and offer tailor-made solutions to fulfill requirements.The
company possesses strong placement capabilities across institutional, high net-worth
individuals and retail investors. This makes it possible for the team to place large issues
with marquee investors.
Competitors:
Name Last Price
Market Cap.
(Rs. cr.)
Sales
Turnover
Net Profit Total Assets
Network 18 37.00 3,872.67 203.06 -29.91 3,814.28
Edelweiss 44.75 3,487.11 156.81 46.79 2,260.02
IIFL Holdings 99.50 2,960.01 88.67 97.77 1,310.02
SKS Microfin 252.65 2,734.00 518.99 69.85 1,226.52
Delta Corp 100.45 2,286.01 38.95 21.62 701.47

SWOT Analysis:
Strength 1. India Infoline Ltd gives all the types of services and products an
individual investor can dream and think of. All the nancial
products and services are under one-roof.
2. India Infoline Ltd brings within the customers reach their
institutional ex-pertise and the ability to eectively combine an
invaluable understanding of the nancial markets, with an intention
of building a long-term partnership
3. Customization: It understands the dreams, needs, aspirations,
concerns and resources are unique and this is reected in every
move they do for the sake of individual customer.
4. Have over 2500 offices in India in over 500 cities
5. The teams of expert investment advisors customize plans to suit
17

the needs of investors.
6. IIFL has been awarded the Best Broker, India , Most improved
brokerage, India , Fastest Growing Equity Broking House
Weakness
1. High risk exposure as seen by conservative population
2. Less emphasis on advertising causes lack of brand visibility
Opportunity
1. High income Urban families
2. More penetration into the growing cities
3. Indian economy seems to be out of recession. This is the right
time for investors to re-enter the market. The company should adopt
some strategies to increase the business through existing clients.
Threats
1. Stringent Economic measures by Government and RBI
2. Entry of foreign finance firms in Indian Market
3. Increasing awareness of mutual funds and ULIPs created by
Domestic Insti-tutional Investors has reduced the direct investment
in to stock market tosome extent. This automatically reduces the
business of stock brokers.











18

Organizational Structure of IIFL:























Board of Directors
CEO
COO
Exec. Director (Retail) Exec. Director (Finance
& Operations)
Equity
Distribution Research
Online Business
Head
Client Acquisition
Group
Zonal Sales
Manager(South
)
Zonal Sales
Manager(Nort
h)
Zonal Sales
Manager(West)
Zonal Sales
Manager(East)
Regional Sales
Manager
Trainee
Assistant Sales
Manager
19



ABOUT THE TOPIC
Technical Analysis
Technical analysis is a method of predicting price movements and future market trends
by studying charts of historical data. The initial data for a technical analysis are prices:
the highest and the lowest prices, the price of opening and closing within a certain period
of time, and the volume of transactions. Technical analysis presupposes that all the
information about the market and its further fluctuations is contained in the price chain.
Any factor, that has some influence on the price, be it economic, political or
psychological, has already been considered by the market and included in the price,
technical analysis is concerned with what has actually happened in the market, rather
than what should happen and takes into account the price of instruments and the volume
of trading, and creates charts from that data to use as the primary tool.In a shopping mall,
a fundamental analyst would go to each store, study the product that was being sold, and
then decide whether to buy it or not. By contrast, a technical analyst would sit on a bench
in the mall and watch people go into the stores.
The Pillars of Technical Analysis a. Price:
Price is the most important of these areas; we measure profits and losses in price
differences between buys and sells. It deserves most focus by analysts and academics
alike, but if all four can be employed together, the odds of making successful decisions
can be dramatically increased.
b. Volume: Volume includes such concepts as accumulation and distribution, market
breadth,open interest, and trade count.
c. Time: Time includes cycles, seasonality, and relationships between patterns and
trends from aduration point of view.
d)Sentiment: Sentiment is a more subjective area that seeks to determine solely if the
masses i.e. the consensus of investors- is tipped too far in one direction. At that point, it
pays to consider positioning against the crowd.
Objective of the Study
The prime objective of the study is to understand the trends in the stock prices using
technical analysis and to use this information to determine the attractiveness of the script
for the purpose of investment.

The objectives can be summarized as:
unaware or ineffective with the stock market; everyone is affected by the To determine
the future direction where the price of a stock is headed in the short run.To learn the
basic concepts which an individual should be aware of when he or she enters the stock
market; as when to enter the market and when to exit Developing suitable model
comprising of various technical indicators which could be applied to the stock market in
general. Being a future finance student it is very necessary to gain the knowledge
of stock market.Understand the day to day fluctuations of stock market.Technical
analysis of stock exchange (nifty).In the present scenario nobody can be market, so one
cant ignore the situation.

20


SEBI
The Securities and Exchange Board of India (frequently abbreviated SEBI) is
the regulator for the securities market in India. It was established in the year 1988 and
given statutory powers on 12 April 1992 through the SEBI Act, 1992.It was officially
established by The Government of India in the year 1988 and given statutory powers in
1992 with SEBI Act 1992 being passed by the Indian Parliament. SEBI has its
Headquarters at the business district of Bandra Kurla Complex in Mumbai, and has
Northern, Eastern, Southern and Western Regional Offices in New
Delhi, Kolkata, Chennai and Ahmedabad respectively.Controller of Capital Issues was
the regulatory authority before SEBI came into existence; it derived authority from the
Capital Issues (Control) Act, 1947.
Initially SEBI was a non statutory body without any statutory power. However in the
year of 1995, the SEBI was given additional statutory power by the Government of India
through an amendment to the Securities and Exchange Board of India Act, 1992. In
April, 1988 the SEBI was constituted as the regulator of capital markets in India under a
resolution of the Government of India.
The SEBI is managed by its members, which consists of following: a) The chairman who
is nominated by Union Government of India. b) Two members, i.e. Officers from Union
Finance Ministry. c) One member from The Reserve Bank of India. d) The remaining 5
members are nominated by Union Government of India, out of them at least 3 shall be
whole-time members.
The office of SEBI is situated at SEBI Bhavan, Bandra Kurla Complex, Bandra East,
Mumbai- 400051, with its regional offices at Kolkata, Delhi,Chennai & Ahmadabad. It
has recently opened local offices at Jaipur and Bangalore and is planning to open offices
at Guwahati, Bhubaneshwar, Patna, Kochi and Chandigarh in Financial Year 2013 -
2014.

Functions and responsibilities
The Preamble of the Securities and Exchange Board of India describes the basic
functions of the Securities and Exchange Board of India as "...to protect the interests of
investors in securities and to promote the development of, and to regulate the securities
market and for matters connected therewith or incidental there to".
SEBI has to be responsive to the needs of three groups, which constitute the market:
the issuers of securities
the investors
21

the market intermediaries
Powers
For the discharge of its functions efficiently, SEBI has been vested with the following
powers:
1. to approve bylaws of stock exchanges.sebi
2. to require the stock exchange to amend their bylaws.
3. inspect the books of accounts and call for periodical returns from recognized
stock exchanges.
4. inspect the books of accounts of a financial intermediaries.
5. compel certain companies to list their shares in one or more stock exchanges.
6. registration brokers.
there are two types of brokers.
1.circuit broker 2.merchant broker
SEBI Committees
1. Technical Advisory Committee
2. Committee for review of structure of market infrastructure institutions
3. Members of the Advisory Committee for the SEBI Investor Protection and
Education Fund
4. Takeover Regulations Advisory Committee
5. Primary Market Advisory Committee (PMAC)
6. Secondary Market Advisory Committee (SMAC)
7. Mutual Fund Advisory Committee
8. Corporate Bonds & Securitization Advisory Committee
Major achievements
SEBI has enjoyed success as a regulator by pushing systematic reforms aggressively
and successively. SEBI is credited for quick movement towards making the markets
electronic and paperless by introducing T+5 rolling cycle from July 2001 and T+3 in
April 2002 and further to T+2 in April 2003. The rolling cycle of T+2

means, Settlement is done in 2 days after Trade date.

SEBI has been active in
settingup the regulations as required under law. SEBI did away with physical
certificates that were prone t`o postal delays, theft and forgery, apart from making the
settlement process slow and cumbersome by passing Depositories Act, 1996.
SEBI has also been instrumental in taking quick and effective steps in light of the
global meltdown and the Satyam fiasco. In October 2011, it increased the extent and
22

quantity of disclosures to be made by Indian corporate promoters.In light of the
global meltdown, it liberalised the takeover code to facilitate investments by
removing regulatory structures. In one such move, SEBI has increased the
application limit for retail investors to Rs 2 lakh, from Rs 1 lakh at present
primary market
The primary market is the part of the capital market that deals with issuing of
new securities. Companies, governments or public sector institutions can obtain funds
through the sale of a new stock or bond issues through primary market. This is typically
done through an investment bank or finance syndicate of securities dealers.
The process of selling new issues to investors is called underwriting. In the case of a
new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission
that is built into the price of the security offering, though it can be found in
the prospectus. Primary markets create long term instruments through which corporate
entities borrow from capital market.Once issued the securities typically trade on
a secondary market such as a stock exchange, bond market or derivatives exchange.
secondary market
The secondary market, is also called aftermarket, is the financial market in which
previously issued financial instruments such as stock, bonds,options, and futures are
bought and sold.
[1]
Another frequent usage of "secondary market" is to refer to loans
which are sold by a mortgage bank toinvestors such as Fannie Mae and Freddie MacThe
term "secondary market" is also used to refer to the market for any used goods or assets,
or an alternative use for an existing product or asset where the customer base is the
second market (for example, corn has been traditionally used primarily for food
production and feedstock, but a "second" or "third" market has developed for use in
ethanol production).With primary issuances of securities or financial instruments, or
the primary market, investors purchase these securities directly from issuers such
as corporations issuing shares in an IPO or private placement, ordirectly from the federal
government in the case of treasuries. After the initial issuance, investors can purchase
from other investors in the secondary market.The secondary market for a variety of assets
can vary from loans to stocks, from fragmented to centralized, and from illiquid to very
liquid. The major stock exchanges are the most visible example of liquid secondary
markets - in this case, for stocks of publicly traded companies. Exchanges such as
the New York Stock ExchangeNew York Stock Exchange, London Stock
Exchange and Nasdaq provide a centralized, liquid secondary market for the investors
who own stocks that trade on those exchanges. Most bonds and structured products trade
over the counter, or by phoning the bond desk of ones broker-dealer. Loans sometimes
trade online using a Loan Exchange.
Initial public offering (IPO) or stock market launch is a type of public
offering where shares of stock in a company are sold to the general public, on a securities
exchange, for the first time. Through this process, a private company transforms into
23

a public company. Initial public offerings are used by companies to raise expansion
capital, to possiblymonetize the investments of early private investors, and to become
publicly traded enterprises. A company selling shares is never required to repay the
capital to its public investors. After the IPO, when shares trade freely in the open market,
money passes between public investors. Although an IPO offers many advantages, there
are also significant disadvantages, chief among these is the costs associated with the
process and the requirement to disclose certain information that could prove helpful to
competitors, or create difficulties with vendors. Details of the proposed offering are
disclosed to potential purchasers in the form of a lengthy document known as
a prospectus. Most companies undertake an IPO with the assistance of an investment
banking firm acting in the capacity of an underwriter. Underwriters provide several
services, including help with correctly assessing the value of shares (share price), and
establishing a public market for shares (initial sale). Alternative methods such as
the dutch auction have also been explored. In terms of size and public participation, the
most notable example of this method is the Google IPO.
[1]
China has recently emerged as
a major IPO market, with several of the largest IPOs taking place in that country. the
largest IPOs taking place in that country.
'Follow On Public Offer - FPO'
FPOs are popular methods for companies to raise additional equity capital in the capital
markets through a stock issue. Public companies can also take advantage of an FPO
issuing an offer for sale to investors, which is made through an offer document. FPOs
should not be confused with IPOs, as IPOs are the initial public offering of equity to the
public while FPOs are supplemantary issues made after a company has been established
on an exchange.
CNX NIFTY

The CNX Nifty is a well-diversified 50 stock index accurately reflecting overall market
conditions. The reward-to-risk ratio of CNX Nifty is higher than other leading indices,
making it a more attractive portfolio hence offering similar returns, but at lesser risk.
CNX Nifty is based upon solid economic research and is well respected internationally as
a pioneering effort in better understanding how to make a stock market index. CNX Nifty
Index is computed using free float market capitalization method, wherein the level of the
index reflects the total free float market value of all the stocks in the index relative to
particular base market capitalization value.
CNX Nifty can be used for a variety of purposes such as benchmarking fund portfolios,
launching of index funds, ETFs and structured products.
Eligibility Criteria for Selection of Constituent Stocks
i.Market impact cost is the best measure of the liquidity of a stock. It accurately reflects
the costs faced when actually trading an index. For a stock to qualify for possible
inclusion into the CNX Nifty, have traded at an average impact cost of 0.50% or less
during the last six months for 90% of the observations, for the basket size of Rs. 20
Million.


24





ii. The company should have an investable weight factor (IWF) of at least 10%.

iii. The company should have a listing history of 6 months.

iv. A company which comes out with an IPO will be eligible for inclusion in the index, if
it fulfills the normal eligibility criteria for the index for a 3 month period instead of a 6
month period.
Index Re-Balancing:
Index is re-balanced on semi annual basis. The cut-off date is January 31 and July 31 of
each year, i.e. For semi-annual review of indices, average data for six months ending the
cut-off data is considered. Four weeks prior notice is given to market from the date of
change.
Index Govenance:
A professional team at IISL manages CNX Nifty Index. There is a three-tier governance
structure comprising the Board of Directors of IISL, the Index Policy Committee, and the
Index Maintenance Sub Committee.

Portfolio Characteristics
Methodology
Free Float Market Capitalization
No. of Constituents
50
Launch Date
April 01, 1996
Base Date
November 03, 1995
Base Value
1000
Calculation Frequency
Real-time Daily
Index Rebalancing
Semi-Annually

Sector Representation
Sector
Weight(%)
FINANCIAL SERVICES
27.45
IT
16.34
ENERGY
14.31
CONSUMER GOODS
12.63
AUTOMOBILE
8.82
PHARMA
5.23
CONSTRUCTION
4.97
METALS
4.80
CEMENT & CEMENT PRODUCTS
3.08
TELECOM
1.68
INDUSTRIAL MANUFACTURING
0.69
25





Top 10 constituents by weightage
Companys Name Weight(%)
I T C Ltd 8.69
Infosys Ltd 7.06
Reliance Industries Ltd. 6.81
ICICI Bank Ltd. 6.40
HDFC Bank Ltd. 6.18
Housing Development Finance
Corporation Ltd
6.14
Tata Consultancy Services Ltd. 4.86
Larsen & Toubro Ltd. 4.62
Tata Motors Ltd. 3.19
State Bank of India 2.64
Statistics
QTD TYD 1year 5years Since
inception
Returns 6.35 6.35 17.98 17.27 10.88


1year 5years Since inception
Std. Deviation * 18.07 20.81 25.83
Beta (Nifty) 1.00 1.00 1.00
Correlation 1.00 1.00 1.00

Fundamentals
P/E P/B Dividend
18.86 3.23 1.37
26




DOW THEORY
The Dow theory on stock price movement is a form of technical analysis that includes
some aspects of sector rotation. The theory was derived from 255 Wall Street Journal
editorials written by Charles H. Dow (18511902), journalist, founder and first editor of
the Wall Street Journal and co-founder of Dow Jones and Company.
1. The market has three movements
(1) The "main movement", primary movement or major trend may last from less
than a year to several years. It can be bullish or bearish. (2) The "medium swing",
secondary reaction or intermediate reaction may last from ten days to three
months and generally retraces from 33% to 66% of the primary price change
since the previous medium swing or start of the main movement. (3) The "short
swing" or minor movement varies with opinion from hours to a month or more.
The three movements may be simultaneous, for instance, a daily minor movement
in a bearish secondary reaction in a bullish primary movement.
2. Market trends have three phases
Dow theory asserts that major market trends are composed of three phases: an
accumulation phase, a public participation (or absorption) phase, and a
distribution phase. The accumulation phase (phase 1) is a period when investors
"in the know" are actively buying (selling) stock against the general opinion of
the market. During this phase, the stock price does not change much because
these investors are in the minority demanding (absorbing) stock that the market at
large is supplying (releasing). Eventually, the market catches on to these astute
investors and a rapid price change occurs (phase 2). This occurs when trend
followers and other technically oriented investors participate. This phase
27

continues until rampant speculation occurs. At this point, the astute investors
begin to distribute their holdings to the market (phase 3).
3. The stock market discounts all news
Stock prices quickly incorporate new information as soon as it becomes available.
Once news is released, stock prices will change to reflect this new information.
On this point, Dow theory agrees with one of the premises of the efficient market
hypothesis.
4. Stock market averages must confirm each other
In Dow's time, the US was a growing industrial power. The US had population
centers but factories were scattered throughout the country. Factories had to ship
their goods to market, usually by rail. Dow's first stock averages were an index of
industrial (manufacturing) companies and rail companies. To Dow, a bull market
in industrials could not occur unless the railway average rallied as well, usually
first. According to this logic, if manufacturers' profits are rising, it follows that
they are producing more. If they produce more, then they have to ship more
goods to consumers. Hence, if an investor is looking for signs of health in
manufacturers, he or she should look at the performance of the companies that
ship the output of them to market, the railroads. The two averages should be
moving in the same direction. When the performance of the averages diverge, it is
a warning that change is in the air.
Both Barron's Magazine and the Wall Street Journal still publish the daily
performance of the Dow Jones Transportation Index in chart form. The index
contains major railroads, shipping companies, and air freight carriers in the US.
5. Trends are confirmed by volume
Dow believed that volume confirmed price trends. When prices move on low
volume, there could be many different explanations. An overly aggressive seller
could be present for example. But when price movements are accompanied by
high volume, Dow believed this represented the "true" market view. If many
participants are active in a particular security, and the price moves significantly in
one direction, Dow maintained that this was the direction in which the market
anticipated continued movement. To him, it was a signal that a trend is
developing.
6. Trends exist until definitive signals prove that they have ended
28

Dow believed that trends existed despite "market noise". Markets might
temporarily move in the direction opposite to the trend, but they will soon resume
the prior move. The trend should be given the benefit of the doubt during these
reversals. Determining whether a reversal is the start of a new trend or a
temporary movement in the current trend is not easy. Dow Theorists often
disagree in this determination. Technical analysis tools attempt to clarify this but
they can be interpreted differently by different investors.




Chart Patterns
Chart Patterns: Introduction
Chart Patterns: Why Charts?
Chart Patterns: Head And Shoulders
Chart Patterns: Cup And Handle
Chart Patterns: Double Top And Double Bottom
Chart Patterns: Triangles
Chart Patterns: Flags And Pennants
Chart Patterns: The Wedge
Chart Patterns: Gaps
Chart Patterns: Triple Tops And Bottoms
Chart Patterns: Round Bottoms
Chart Patterns: Conclusion.

1) Introduction
Ever looked at the chart of a stock or commodity? Most likely, you have. Just about
everyone who has ever analyzed a security takes a look at the price movements of
the past month, quarter, year, etc.

For many analysts, the chart of a security is the starting point for all future analysis.
Even staunch critics of technical analysis use charts to some extent.
And for good reason: charts can provide a lot of information in a small amount of time.

Taking a look at the five-year chart of a company, you can quickly determine how well
shareholders have done over the period. Based on the movements represented on the
chart, one can tell if a company's share value has grown over the period or lagged.

The chart reader also can determine the volatility of the companys shares by looking at
the movements on the chart. A company whose stock exhibits very jagged up-and-
down movements is clearly more volatile than a company whose stock moves relatively
29

smoothly across time.

But this is only the tip of the iceberg in terms of how charts are used by market
participants. In this tutorial, we'll introduce you to some of the more advanced uses of
charts.
2) Why Charts?
Before the advent of computers and data feeds, the use of charts to formulate trading
strategies was outside the mainstream of trading techniques. The reason, creating charts
was difficult. Each chart had to be created by hand, with chartists adding another data
point at the close of trading for each security they were following. Also, chart users were
often misrepresented as a bizarre group of individuals huddled in the recesses of the
brokerage house as they added the latest data point to their closely coveted charts.

But with the advancement of technology and the increased popularity of technical
analysis, the use of charts has greatly increased, making them one of, if not the most
important tools used by technical traders.

A single chart has the ability to display a significant amount of information. More
conceptually, charts are an illustration of the struggle between buyers and sellers. While
this point is debatable between the schools of investment like technical, fundamental and
efficient market analysis, technical analysis assumes that: a) prices discount everything,
b) prices moves in trends and c) history repeats itself.

Assuming the above tenets are true, charts can be used to formulate trading signals
and can even be the only tool a trader utilizes.
Patterns on a Chart
Chart patterns signal to traders that the price of a security is likely to move in one
direction or another when the pattern is complete.

There are two types of patterns in this area of technical analysis: reversal and
continuation. A reversal pattern signals that a prior trend will reverse on completion
of the pattern. Conversely, a continuation pattern indicates that the prior trend will
continue onward upon the pattern's completion.

The difficulty in identifying chart patterns and their subsequent signals is that chart use is
not an exact science. In fact, it's often viewed as more of an art than a science. While
there is a general idea and components to every chart pattern, the price movement does
not necessarily correspond to the pattern suggested by the chart. This should not
discourage potential users of charts - once the basics of charting are understood, the
quality of chart patterns can be enhanced by looking at volume and secondary indicators.

There are several concepts that need to be understood before reading about specific chart
patterns. The first is a trendline, which is a line drawn on a chart to signal a level of
support or resistance for the price of the security. Support trendlines are the levels at
which prices have difficulty falling below. Conversely, a resistance trendline illustrates
the level at which prices have a hard time going above. These trendlines can be constant
price levels, such as $50, or rise or fall in the direction of the trend as time goes on.

Now that we have an understanding of the concepts behind the use of charts as a trading
30

technique, we can start to explore the many different patterns used by chartists.

3) Head And Shoulders
The head-and-shoulders pattern is one of the most popular and reliable chart patterns
in technical analysis. And as one might imagine from the name, the pattern looks
like a head with two shoulders.

Head and shoulders is a reversal pattern that, when formed, signals the security is likely
to move against the previous trend. There are two versions of the head-and-shoulders
pattern. The head-and-shoulders top is a signal that a security's price is set to fall, once
the pattern is complete, and is usually formed at the peak of an upward trend. The
second version, the head-and-shoulders bottom (also known as inverse head and
shoulders), signals that a security's price is set to rise and usually forms during a
downward trend.
31















The head and shoulders are sets of peaks and troughs. The neckline is a level of support
or resistance. The head and shoulders pattern is based on Dow Theory's peak-and-trough
analysis. An upward trend, for example, is seen as a period of successive rising peaks and
rising troughs. A downward trend, on the other hand, is a period of falling peaks and
troughs. The head-and-shoulders pattern illustrates a weakening in a trend where there is
deterioration in the peaks and troughs.
4) Cup And Handle
A cup-and-handle pattern resembles the shape of a tea cup on a chart. This is a bullish
continuation pattern where the upward trend has paused, and traded down, but will
continue in an upward direction upon the completion of the pattern. This pattern can
range from several months to a year, but its general form remains the same.

The cup-and-handle pattern is preceded by an upward move, which stalls and sells off.
The sell-off is what forms the initial part of this pattern. After the sell-off, the security
will basically trade flat for an extended period of time, with no clear trend. The next part
of the pattern is the upward move back towards the peak of the preceding upward move.
The last part of the pattern, known as the handle, is a relatively smaller downward move
before the security moves higher and continues the previous trend.










32

5) Double Top And Double Bottom
The double top and double bottom are another pair of well-known chart patterns whose
names dont leave much to the imagination. These two reversal patterns illustrate a
security's attempt to continue an existing trend. Upon several attempts to move higher,
the trend is reversed and a new trend begins. These chart patterns formed will often
resemble what looks like a W (for a double bottom) or an M (double top).

Double Top
The double-top pattern is found at the peaks of an upward trend and is a clear signal
that the preceding upward trend is weakening and that buyers are losing interest. Upon
completion of this pattern, the trend is considered to be reversed and the security is
expected to move lower.

The first stage of this pattern is the creation of a new high during the upward trend,
which, after peaking, faces resistance and sells off to a level of support. The next stage
of this pattern will see the price start to move back towards the level of resistance found
in the previous run-up, which again sells off back to the support level. The pattern is
completed when the security falls below (or breaks
down) the ` `support level that had backstopped each move the security made, thus
marking the beginnings of a downward trend. Double Bottom
This is the opposite chart pattern of the double top as it signals a reversal of the
downtrend into an uptrend. This pattern will closely resemble the shape of a "W".






33









The double bottom is formed when a downtrend sets a new low in the price movement.
This downward move will find support, which prevents the security from moving lower.
Upon finding support, the security will rally to a new high, which forms the security's
resistance point. The next stage of this pattern is another sell-off that takes the security
down to the previous low. These two support tests form the two bottoms in the chart
pattern. But again, the security finds support and heads back up. The pattern is confirmed
when the price moves above the resistance the security faced on the prior move up.
6) Triangles
As you may have noticed, chart pattern names don't leave much to the imagination.
This is no different for the triangle patterns, which clearly form the shape of a triangle.
The basic construct of this chart pattern is the convergence of two trendlines - flat,
ascending or descending - with the price of the security moving between the two
trendlines.

There are three types of triangles, which vary in construct and significance: the
symmetrical triangle, the descending triangle and the ascending triangle.

Symmetrical triangle
The symmetrical triangle is mainly considered to be a continuation pattern that signals a
period of consolidation in a trend followed by a resumption of the prior trend. It is
formed by the convergence of a descending resistance line and an ascending support
line. The two trendlines in the formation of this triangle should have a similar slope
converging at a point known as the apex. The price of the security will bounce between
these trendlines, towards the apex, and typically breakout in the direction of the prior
trend.






34

Ascending Triangle
The ascending triangle is a bullish pattern, which gives an indication that the price of the
security is headed higher upon completion. The pattern is formed by two trendlines: a
flat trendline being a point of resistance and an ascending trendline acting as a price
support.

The price of the security moves between these trendlines until it eventually breaks out
to the upside. This pattern will typically be preceded by an upward trend, which makes
it a continuation pattern; however, it can be found during a downtrend.











Descending triangle
The descending triangle is the opposite of the ascending triangle in that it gives a bearish
signal to chartists, suggesting that the price will trend downward upon completion of the
pattern. The descending triangle is constructed with a flat support line and a downward-
sloping resistance line.Similar to the ascending triangle, this pattern is generally
considered to be a continuation pattern, as it is preceded by a downward trendline. But
again, it can be found in an uptrend.







35

7) Flags And Pennants
The flag and pennant patterns are two continuation patterns that closely resemble
each other, differing only in their shape during the pattern's consolidation period.
This is the reason the terms flag and pennant are often used interchangeably. A flag
is a rectangular shape, while the pennant looks more like a triangle.
Flag
The flag pattern forms what looks like a rectangle. The rectangle is formed by two
parallel trendlines that act as support and resistance for the price until the price
breaks out. In general, the flag will not be perfectly flat but will have its trendlines
sloping.











In general, the slope of the flag should move in the opposite direction of
the initial sharp price movement; so if the initial movement were up, the flag should be
downward sloping.

The buy or sell signal is formed once the price breaks through the support or resistance
level, with the trend continuing in the prior direction. This breakthrough should be on
heavier volume to improve the signal of the chart pattern.

The Pennant
The pennant forms what looks like a symmetrical triangle, where the support and
resistance trendlines converge towards each other. The pennant pattern does not need to
follow the same rules found in triangles, where they should test each support or
resistance line several times. Also, the direction of the pennant is not as important as it is
in the flag; however, the pennant is generally flat.







36

General Ideas
While the construct of the pause in the trend is different for the flag and pennant, the
attributes of the chart patterns themselves are similar. It is vital that the price movement
prior to the flag or pennant be a strong, sharp move.

Typically, these patterns take less time to form during downtrends than in uptrends. In
terms of pattern length, they are generally short-term patterns lasting one to three weeks,
but can be formed over longer periods.

The volume, as with most breakout signals, should be seen as strong during the
breakout to confirm the signal. Upon breakout, the initial price objective is equal to the
distance of the prior move added to the breakout point. For example, if a prior sharp up
movement was from $30 to $40, then the resulting price objective from a price breakout
of $38 would be $48 ($38+$10).
8) The Wedge
The wedge chart pattern signals a reverse of the trend that is currently formed within the
wedge itself. Wedges are similar in construction to a symmetrical triangle in that there
are two trendlines - support and resistance - which band the price of a security.

The wedge pattern differs in that it is generally a longer-term pattern, usually
lasting three to six months. It also has converging trendlines that slant in an either
upward or downward direction, which differs from the more uniform trendlines of
triangles.

There are two main types of wedges falling and rising which differ on the
overall slant of the pattern. A falling wedge slopes downward, while a rising wedge
slants upward.
Falling Wedge
The falling wedge is a generally bullish pattern signaling that one will likely see the
price break upwards through the wedge and move into an uptrend. The trendlines of
this pattern converge, with both being slanted in a downward direction as the price is
trading in a downtrend From the below, one can see that a wedge is similar to the
triangles, in that the price movement bounces between the two trendlines, which are
bounding the price movement.












37

Rising Wedge
Conversely, a rising wedge is a bearish pattern that signals that the security is
likely to head in a downward direction. The trendlines of this pattern converge, with
both trendlines slanted in an upward direction. Again, the price movement is bounded
by the two converging trendlines. As the price moves towards the apex of the pattern,
momentum is weakening. A move below the lower support would be viewed by traders
as a reversal in the upward trend.









9) Gaps
A gap in a chart is essentially an empty space between one trading period and the
previous trading period. They usually form because of an important and material event
that affects the security, such as an earnings surprise or a merger agreement.

This happens when there is a large-enough difference in the opening price of a trading
period where that price and the subsequent price moves do not fall within the range of
the previous trading period. For example, if the price of a companys stock is trading
near $40 and the next trading period opens at $45, there would be a large gap up on the
chart between these two periods, as shown by the figure below.








38

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. The reason for this is that every point on
both point-and-figure charts and line charts are connected.
Common Gap
As its name implies, the common gap occurs often in the price movements of a security.
For this reason, it's not as important as the other gap movements but is still worth noting.










These types of gaps often occur when a security is trading in a range and will often be
small in terms of the gap's price movement. They can be a result of commonly
occurring events, such as low-volume trading days or after an announcement of a
stock split.

Breakaway Gap
A breakaway gap occurs at the beginning of a market move - usually after the security
has traded in a consolidation pattern, which happens when the price is non-trending
within a bounded range. It is referred to as a breakaway gap as the gap moves the
security out of a non-trending pattern into a trending pattern.










39


Runaway Gap (Measuring Gap)
A runaway gap is found around the middle of a trend, usually after the price has already
made a strong move. It is a healthy sign that the current trend will continue as it
indicates continued, and even increasing, interest in the security.
After a security has made a strong move, many of the traders that have been on the
sideline waiting for a better entry or exit point decide that it may not be coming and if
they wait any longer they will miss the trade. It is this increased buying or selling that
creates the runaway gap and continuation of the trend.









Volume in a runaway gap is not as important as it is for a breakaway gap but generally
should be marked with average volume. If the volume is too extreme, it could signal that
the runaway gap is actually an exhaustion gap (discussed further in the next section),
which signals the end of a trend.

The runaway gap forms support or resistance in the exact same manner as the breakaway
gap. Likewise, the measuring gap does not often fill, and there's cause for concern if the
price breaks through the support or resistance, as it is a sign that the trend is weakening -
and could even signal that this is an exhaustion gap and not a runaway gap.

Exhaustion Gap
This is the last gap that forms at the end of a trend and is a negative sign that the trend is
about to reverse. This usually occurs at the last thrusts of a trend
(typically marked with panic or hype), but can also be the point when weaker
market participants start to move in or out of the security.
The exhaustion gap usually coincides with an irrational market philosophy, such as the
security being touted as "a can't-miss opportunity" or conversely as something to "avoid
at all costs".



40

















To identify this as an exhaustion gap or the last large move in the trend, the gap should
be marked with a large amount of volume. The strength of this signal is also increased
when it occurs after the security has already made a substantial move.

Because the exhaustion gap signals a trend reversal, the gap is expected to fill
After the exhaustion gap, the price will often move sideways before eventually
moving against the prior trend. Once the price fills the gap, the pattern is considered
to be complete and signals that the trend will reverse.

Island Reversal
One of the most well-known gap patterns is the island reversal, which is formed by a
gap followed by flat trading and then confirmed by another gap in the opposite
direction. This pattern is a strong signal of a top or bottom in a trend, indicating a
coming shift in the trend.
41










Above is an example of an island-bottom reversal that occurs at the end of a downtrend. It's
formed when an exhaustion gap appears in a downtrend followed by a period of flat trading.
The pattern is confirmed when an upward breakaway gap forms in the price pattern.

The size of the trend reversal or the quality of the signal is dependent on the location of
the island in the prior trend. If it happens near the beginning of a trend, then the size of
the reversal will likely be less significant.
10 Triple Tops And Bottoms
The triple top and triple bottom are reversal patterns that are formulated when a security
attempts to move past a key level of support or resistance in the direction of the prevailing
trend.

This chart pattern represents the market's attempt to move a security in a certain direction.
After three failed attempts, the buyers (in the case of a top) or sellers
(in the case of a bottom) give up, and the opposing group in the market takes a hold of the
security, sending it downward (sellers) or upward (buyers). Triple Top
This bearish reversal pattern is formed when a security that is trending upward tests a
similar level of resistance three times without breaking through. Each time the security
tests the resistance level, it falls to a similar area of support. After the third fall to the
support level, the pattern is complete when the security falls through the support; the
price is then expected to move in a downward trend.






42

The first step in this pattern is the creation of a new high in an uptrend that is stalled by
selling pressure, which forms a level of resistance. The selling pressure causes the price to
fall until it finds a level of support, as buyers move back into the security. The buying
pressure sends the price back up to the area of resistance the security previously met. Again,
the sellers enter the market and send the security back down to the support level.

Triple Bottom
This bullish reversal pattern has all of the same attributes as the triple top but signals a
reversal of a downward trend. The triple-bottom pattern illustrates a security that is
trading in a downtrend and attempts to fall through a level of support three times, each
time moving back to a level of resistance. After the third attempt to push the price lower,
the pattern is complete when the price moves above the resistance level and begins
trading in an upward trend.









This pattern begins by setting a new low in a downtrend, which is followed by a rally to a
high. This sets up the range of trading for the triple-bottom pattern. After hitting the high, the
price again comes under selling pressure, which sends it back down to the previous low.
Buyers again move back into the security at this support level, sending the price back up
again, usually to the previous high.
11 Round Bottoms
A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that
signals a shift from a downtrend to an uptrend. This pattern is traditionally thought to last
anywhere from several months to several years. Due to the long-term look of these patterns
and their components, the signal and construct of these patterns are more difficult to identify
than other reversal patterns.

A rounding-bottom pattern looks similar to a cup and handle, but without the handle. The
basic formation of a rounding bottom comes from a downward price movement to a low,
followed by a rise from the low back to the start of the downward price movement - forming
what looks like a rounded bottom.



43
















Conclusion
This introduction to chart patterns has provided a broad overview of chart pattern analysis
and several of the largest patterns.

Here's a brief summary of what we've covered:

Chart analysis is the technique of using patterns formed on a securities chart to
formulate buy and sell signals.
There are two types of chart patterns: reversal and continuation.
A continuation pattern suggests that the prior trend will continue upon
completion of the pattern.
A reversal pattern suggests that the prior trend will reverse upon
completion of the pattern.
A head-and-shoulders top suggests a reversal in the prior uptrend.
An inverse head and shoulders suggests a reversal in the prior downtrend.
A cup-and-handle pattern is a bullish continuation pattern that suggests a
continuation of the prior uptrend.
A double top is a bearish reversal pattern, which suggests that the preceding
up trend will reverse after confirmation of the pattern.
A double bottom is a bullish reversal pattern, which suggests that the prior downtrend
will reverse.
There are three main types of triangle patterns - symmetrical, descending and
ascending, which are constructed by converging trendlines.
A symmetrical triangle, which is formed when two similarly sloped trendlines
converge, typically suggests a continuation of the prior trend.
A descending triangle, which is formed when a downward sloping trendline
converges towards a horizontal support line, suggests a downward trend
after completion of the pattern.
An ascending triangle, which is formed when an upward sloping trendline converges
towards a horizontal resistance line, suggests an uptrend after completion of the
pattern.
Flags and pennants are continuation patterns formed after a sharp price movement.
The move consolidates, forming a flag shape or pennant share, and suggests
another strong move in the same direction of the prior move upon completion.
44

A wedge chart pattern suggests a reversal in the prior trend when the price action
moves outside of the converging trend lines in the opposite direction of the prior
trend.
A gap is formed on a chart when there is an empty space between two time
periods. Common gap patterns include: common, breakaway, runaway
(measuring) and exhaustion.
A triple top is a reversal pattern formed when a security attempts to move past a level
of resistance three times and fails. Upon failure of the third attempt the trend is
thought to reverse and move in a downward trend.
A triple bottom is a reversal pattern formed when a security attempts to move below
an area of support three times but fails to do so. Upon failure of the third attempt
below resistance the trend is thought to reverse and move upward.
A rounding bottom is a long-term reversal pattern that signals a shift from a
downward trend to an upward trend.

Exponential Moving Average - EMA

A type of moving average that is similar to a simple moving average, except that more weight
is given to the latest data. The exponential moving average is also known as "exponentially
weighted moving average". This type of moving average reacts faster to recent price changes
than a simple moving average. The 12- and 26-day EMAs are the most popular short-term
averages, and they are used to create indicators like the moving average convergence
divergence (MACD) and the percentage price oscillator (PPO). In general, the 50- and 200-day
EMAs are used as signals of long-term trends.
'Relative Strength Index - RSI'
A technical momentum indicator that compares the magnitude of recent gains to recent losses
in an attempt to determine overbought and oversold conditions of an asset. It is calculated
using the following formula:
RSI = 100 - 100/(1 + RS*)
Where RS = Average of x days' up closes / Average of x days' down closes.
45


As you can see from the chart, the RSI ranges from 0 to 100. An asset is deemed to be
overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued
and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication
that the asset may be getting oversold and therefore likely to become undervalued.

Method 0f technical analysis
Steps involved in technical analysis
Under standing the dow theories behind technical analysi
a. Look for quick results.
b. Read charts to spot price trends
c. Understanding the concepts of support and resistance.
d. Pay attention to the volume of trading.
e. Use moving averages to smooth out minor price fluctuations
f. Use oscillators and indicators to support what the price movemets are telling





46

Limitations of Technical Analysis
1. Analyst Bias
Just as with fundamental analysis, technical analysis is subjective and our personal biases can
be reflected in the analysis. It is important to be aware of these biases when analyzing a chart.
If the analyst is a perpetual bull, then a bullish bias will overshadow the analysis.
2. Open to Interpretation
Furthering the bias argument is the fact that technical analysis is open to interpretation. Even
though there are standards, many times two technicians will look at the same chart and paint
two different scenarios or see different patterns. Both will be able to come up with logical
support and resistance levels as well as key breaks to justify their position.
3. Too Late
Technical analysis has been criticized for being too late. By the time the trend is identified, a
substantial portion of the move has already taken place..
4. Always Another Level
Even after a new trend has been identified, there is always another "important" level close at
hand. Technicians have been accused of sitting on the fence and never taking an unqualified
stance.
5. Trader's Remorse
Not all technical signals and patterns work. When you begin to study technical analysis, you
will come across an array of patterns and indicators with rules to match. For instance: A sell
signal is given when the neckline of a head and shoulders pattern is broken. Even though this is
a rule, it is not steadfast and can be subject to other factors such as volume and momentum. In
that same vein, what works for one particular stock may not work for another.
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51

Technical Analysis
Technical Strength:
Indicator Analysis
Signal (0
- 10) Chart
RSI RSI is 78.0. According to RSI analysis, nifty is overbought. 3.0 NIFTY RSI Chart
MACD MACD: 183.0 and Signal Line: 169.0. According to MACD analysis,
nifty is technically strong.
8.0 NIFTY MACD Chart
Simple Moving
Average
According to simple moving average analysis, nifty is in a strong
uptrend. Major support levels are 7396.83, 7031.15, 6345.559.
10.0 NIFTY Simple Moving
Average Chart
Exponential Moving
Average
According to exponential moving average analysis, nifty is in a strong
uptrend. Major support levels are 7389.795, 7088.41, 6483.634.
10.0 NIFTY Exponential Moving
Average Chart
Bollinger Bands %b is 0.918. According to bollinger bands, nifty is technically strong. 7.0 NIFTY Bollinger Bands
Chart
Fibonacci
Retracement
According to fibonacci retracement, price is above all levels. Major
support is at 7294.557 and 7169.3. Resistance level is 7700.05.
6.5 NIFTY Fibonacci
Retracement Chart
Average True
Range
ATR: 104 NA NIFTY Average True Range
Chart
Average Directional
Index
ADX is 52.6 which means NIFTY's trend is ending soon. NA NIFTY Average Directional
Index Chart




52

End-of-Day Stock Price - NSE
June 12, 2014
Open Price 7641.3
High Price 7658.0
Low Price 7593.8
Close Price 7649.9
Absolute Change 23.05
Percentage Change 0.302%
Weekly Change 2.35%
Monthly Change 7.39%
Yearly Change 29.2%
52-week high 7700.05
52-week low 5118.85

53



Futures & Options Analysis
Indicator Analysis
Signal (0 -
Strong Sell, 10 -
Strong Buy) Chart
PCR 12 June 2014: PCR_OI:0.918
PCR:0.981
NA NIFTY PCR Chart
Premium 12 June 2014 Premium: 14.75
Futures OI:16692250.0
NA NIFTY Premium
Chart
Option_MAX_OI 12 June 2014: Price:7649.9 Put with
maximum OI:7500.0 Call with
maximum OI:8000.0
NA NIFTY
Option_MAX_OI
Chart

Futures - NSE
Expiry
Date
Close
Price
Open
Interest
Number of
Trades
No of
Contracts
Underlying
Closing Price
June 26,
2014
7664.65 16692250.0 80713.0 187018.0 7649.9
July 31,
2014
7696.85 1452600.0 4369.0 5608.0 7649.9
August
28, 2014
7732.65 195800.0 747.0 1094.0 7649.9

54

I ntraday Pivot Points
S3 S2 S1 Pivot R1 R2 R3
Rs. 7546 Rs. 7570 Rs. 7610 Rs. 7634 Rs. 7674 Rs. 7698 Rs. 7738

Conclusion
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 is
the general direction that a security is headed. 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.
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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.
Triple tops and triple bottoms are reversal patterns that are formed when the price
movement tests a level of support or resistance three times and is unable to break .

A rounding bottom (or saucer bottom) is a long-term reversal pattern that signals a
shift from a downward trend to an upward trend.
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 average directional index (ADX) is a trend indicator that is used to measure the
strength of a current trend.
The Aroon indicator is a trending indicator used to measure whether a security is in an
uptrend or downtrend and the magnitude of that trend.
The Aroon oscillator plots the difference between the Aroon up and down lines by
subtracting the two lines.
The moving average convergence divergence (MACD) is comprised of two
exponential moving averages, which help to measure a security's momentum.
56

The relative strength index (RSI) helps to signal overbought and oversold conditions
in a security.
The on-balance volume (OBV) indicator is one of the most well-known technical
indicators that reflects movements in volume.
The stochastic oscillator compares a security's closing price to its price range over a
given time period.



















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BIBLIOGRAPHY

https://www.google.co.in/
http://www.nseindia.com/
http://www.nseindia.com/
http://stockcharts.com/
http://www.investopedia.com/
http://www.traders.com/
Dalal street journals (stock market book)