A

SUMMER INTERNSHIP PROJECT

ON

TECHNICAL ANALYSIS WITH THE HELP OF CANDLESTICK CHART

IN EQUITY MARKET.

FOR

SHARE KHAN LTD. BULDANA.

DEPARTMENT OF BUSINESS ADMINISTRATION & RESEARCH,

SHRI SANT GAJANAN MAHARAJ COLLEGE OF ENGINEERING, SHEGAON.

UNDER THE GUIDANCE OF-

PROF. S. M. MISHRA

SUBMITTED BY-

VINOD G. KOLHE

MBA-II (Batch 2012-14)

SUBMITTED TO AMRAVATI UNIVERSITY

IN PARTIAL FULFILLMENT OF 2 YEARS FULL TIME COURSE

MANAGEMENT OF BUSINESS ADMINISTRATION (MBA)

1
 DEDICATED
TO

In The Lotus Feet Of

!! SHREE SANT GAJANAN MAHARAJ!!
&
My Dearest Parents

2
 ACKNOWLEDGEMENT

It is great pleasure for me to acknowledge the kind of help and guidance received to me
during my project work. I was fortunate enough to get support from a large number of people
to whom I shall always remain grateful.

I would like to express my sincere gratitude to Dr. Durgesh Anorkar and Mrs. Ratna
Gore for giving me this opportunity to undergo this lucrative project with Share khan Ltd.
Buldana and also for their great guidance and advice on this project, without which I will not
be able to complete this project.

I am very thankful to Prof. . S. M. Mishra for him inspiration and for initiating diligent
efforts and expert guidance in course of my study and completion of the project and I am
very thankful to my project guide for giving me timely and concrete guidance for making this
project successful.

I would like to thankful to customers and staff members Sherkhan Ltd.

Buldana For helped me during the project report and providing me more and more valuable
information for my project report.

I would thanks to God for their blessing and my Parents also for their valuable
suggestion and support in my project report.

I would also like to express my deep sense of gratitude towards managers, staff,
& to all those who directly or indirectly helped me in successfully execution of my work.

Vinod G. kolhe

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 TO WHOM SO EVER IT MAY CONCERN

This is to certify that Mr Vinod G. Kolhe is a bonafide student of our institute.

He has successfully carried out his summer project “Technical analysis with
the help of candlestick chart in Equity .” titled at Share khan Ltd. Buldana..
This is the original study of Mr Vinod G. Kolhe and important sources of data
used by him have been acknowledged in his report .
The report is submitted in partial fulfilment of two years full time
course of Masters in Business Administration 2012-14

___________________ ___________________

Prof. S. M. Mishra Dr. H. M. Jha “Bidyarthi”

(Project Guide) Head of the Department

DB&R, SSGMCE, Shegaon.

4
 CERTIFICATE

This is to certify that

Mr. Vinod Ganeshrao Kolhe
is student of DBAR,
Shri Sant Gajanan Maharaj College of Engineering, Shegaon
had completed his project with the project of our company on
“

The duration of the training was from 8th June 2013 to 22th July 2013.
During the project period in our organization his performance was found to be GOOD.
He is hard working , better co-ordination & friendly in nature.

Dr.Durgesh N.Anokar

Project Guide

5
 Content
1. Executive summary………………………………………………………………. 9

2. Objective and scope of the project………………………………………… ……. 10

3. Research methodology…………………………………………………………….11

4. Company profile…………………………………………………………………...12

5. Introduction………………………………………………………………………..15

6. Data analysis……………………………………………………………… ………15

a) Technical analysis

� Assumption…………………………………………………………………16

� Importance ………………………………………………………………….17

� Limitation …………………………………………………………………..18

� Tools & techniques …………………………………………………............19

b) Trend ……………………………………………………………………………...21

� Uptrend……………………………………………………………………...21

� Downtrend ………………………………………………………………….21

� Support……………………………………………………………………...22

� Resistance…………………………………………………………………...22

� Breakout…………………………………………………………………….23

� Trader remorse……………………………………………………………...24

� Dow theory………………………………………………………………….24

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c) Some important point for new investor....................................................................25

d) Pattern of chart……………………………………………………………………29

� Line chart…………………………………………………………………...29

� Bar chart……………………………………………………………………29

� Candle chart………………………………………………………………..30

e) Candlestick……………………………………………………………………….30

� History……………………………………………………………………….31

� Drawing candle line………………………………………………………….31

1) Reversal pattern…………………………………………………………….32

I. Single candle reversal …………………………………………………...32

1) Hammer………………………………………………………………….32

2) Hanging man……………………………………………………………..34

3) Towers……………………………………………………………………34

II. Multiple candle reversal……………………………………………….....36

1) Harami……………………………………………………………………39

2) Harami cross……………………………………………………………...41

3) Head & shoulder………………………………………………………….41

4) Inverted head & shoulder…………………………………………………42

5) Tweezer top & bottom……………………………………………………43

6) Triple bottom & star………………………………………………………44

7) Shooting star………………………………………………………………45

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 III. Star………………………………………………………………………...46

1) Morning star………………………………………………………………46

2) Evening star……………………………………………………………….47

IV. Some other pattern………………………………………………………...49

1) Cup & handle pattern……………………………………………………...49

2) Rounding bottom pattern………………………………………………….49

3) Triangle…………………………………………………………………....50

4) Flag………………………………………………………………………..51

5) Short term trading………………………………………………………....52

7. Questionnaire …………………………………………………………………………54

8. Conclusion…………………………………………………………………………….55

9. Findings……………………………………………………………………….. ……..56

10. Bibliography…………………………………………………………………………..57

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 Executive summary
EQUITY ANALYSIS is the systematic study of the performance of companies in stock
market with help of fundamental analysis and technical analysis. Equity analysis consists of
fundamental analysis & technical analysis. While decision in investment of shares should be
base on actual movement of shares price measured more in money & percentage term &
nothing else. Equity is a share in the ownership of a company. Equity represents a claim on
the company's assets and earnings. As you acquire more equity, your ownership stake in the
company becomes greater. Whether you say shares, equity, it all means the same thing. A
stock is represented by a stock certificate. This is a piece of paper that is proof of your
ownership. Today its in dematerialized form i.e. in electronic form shares have been kept safe.
This is done to make the shares easier to trade. In the past, when a person wanted to sell his
or her shares, that person physically took the certificates down to the brokerage. Now, trading
with a click of the mouse or a phone call makes life easier for everybody.

Technical analysis really just studies supply and demand in a market in an attempt
to determine what direction, or trend, will continue in the future. In other words, technical
analysis attempts to understand the emotions in the market by studying the market itself, as
opposed to its components. If you understand the benefits and limitations of technical
analysis, it can give you a new set of tools or skills that will enable you to be a better trader or
investor. Technical analysis is a method of evaluating securities by analysing the statistics
generated by market activity, such as past prices and volume. Technical analysts do not
attempt to measure a security's intrinsic value, but instead use charts and other tools to
identify patterns that can suggest future activity

The Technical Approach to investment is essentially a reflection of the idea that prices moves
in a trend that are determined by the changing attitude of investor’s toward a variety of
economic, monetary, political and psychological forces. The art of technical analysis, for it is
an art, is to identify a trend reversal at a relatively early stage and ride on that trend until the
weight of the evidence shows or proves the trend has reversed.

The present market scenario has shown us the Boom in Share Market. Even some of
the research firms showed that Share Market is the fastest growing in India. From last two
years share market is in boom. Now it is possible for the investors to trade from their own
place. As compare to last two years there is a growth in the number of share brokers and
market analysts. Media is playing an important role in these regards. Now the common man
is also thinking of some investment in share market. Too many investors invest their money
for the short span, the intention is speculative.

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 Objective & scope of the project
1 Objective of the project :-

� To study technical analysis with the help of Equity market.

� To Study the present behaviour & predicting the future behaviour of equity in

stock market.

� Obtain the knowledge about how to select the companies for investment.

� To Study the equity analysis and obtain the knowledge of equity market.

2 Scope of the project:-

� To study technical analysis online under the guidance of expertise.

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 Research methodology-

During my project , I have collected information from primary & secondary source.

1 Primary source includes

� Discussion with branch manager

� Discussion with experts
� Questionnaires for investors
� Live trading in the market.
2 Secondary source includes

� Various books related to stock market

� Books related to Financial Management
� Web sites were used as the vital information source.

Sherkhan felt need to analyse stock every time before the investment. This analysis done with
the help of candle chart. Sherkhan prepare a software named as “ trade tiger” which helps the
analyst.

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 Company profile:-

Name of the company : Share khan Ltd.

Year of establishment : 1925

Headquarter : Share Khan SSKI

10th floor, Beta Building,
Opp. Conjurmarg railway station,
Canjurmarg,
Mumbai-Maharashtra, INDIA- 400042

Logo of the company-

Vision of the company

company-“To be the best retail brokering Brand in the retail business of stock
market.”

Mission-““To educate and empower the individual investor to make better investment
Mission-
decisions through quality advice and superior service.”

Nature of Business : Service Provider

Services : Depository Services, Online Services

And Technical Research

Number of Employees : Over 3500

Website : www.sharekhan.com

Slogan : You’re Guide to The Financial Jungle

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ACHIEVEMENTS OF SHAREKHAN:
� A Rated among the top 20 wired companies along with Reliance, HUJl, Infosys, etc
by ‘Business Today’, January 2004 edition.

� Awarded ‘Top Domestic Brokerage House’ four times by Euro money and Asia
money.

� Pioneers of online trading in India amongst the top 3 online trading websites from
India. Most preferred financial destination amongst online broking customers.

� Winners of “Best Financial Website” award.

� India’s most preferred brokers within 5 years. “Awaaz customers Award 2005”.

� Among the top 3 branded retail service provider.

� No. 1 player in the online business.

� Largest network of branded broking outlets in the country serving more than
7, 00,000 clients.

Features :-

• Free access to investment advice from share khan’s Research team.

• Share khan value line (a monthly publication with reviews of recommendations stocks
to watch out for etc.)

• Daily research reports and market review (High Noon & Eagle Eye)

• Pre-market Report

• Daily trading calls based on Technical Analysis

• Personalized Advice

• Live Market Information

• Depository Services: Demat Transactions

• Derivatives Trading (Futures and Options)

• Commodities Trading

• Internet-based Online Trading: Speed Trade.

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Product & services:-

� Equity & Derivatives:

Can look for an easy and convenient way to invest in equity and take positions in the futures
and options market using their research and tools. To start trading in Equity, all you need to
do is open an online trading account. You can call them and they will have their
representative meet you. You can get help opening the account and get guidance on how to
trade in Equity.

� Commodity:
You can enter the whole new world of commodity futures. Investors looking for a fast-paced
dynamic market with excellent liquidity can trade now in Commodity Futures Market. The
Commodity Exchange is a Public Market forum and anyone can play in these vital
Commodity Markets. Share khan Ltd. can certainly be your point of entry to the Commodity
Markets. Share khan is a registered trading-cum-clearing member of NCDEX and MCX.

� Internet Trading:
Making the right trade at the right time! E-Broking service, which brings you
experience of online buying and selling of shares with just a click. A detail resource like live
quotes, charts, research and advice helps you take proper decisions. Their robust risk
management system and 128 bit encryption gives you a complete security about money,
shares, and transaction documents.

14
 Data analysis: Introduction

Technical analysis is the study of how past and present price action in a given financial
market may help determine its future direction. At the same time, however, technical analysis
should not be considered a crystal ball. Rather, the skills of a technical analyst are used
primarily to help determine the highest-probability reactions to past and current price
movement, as well as likely future price movement. Therefore, technical analysis is less
about actually predicting the future and more about finding high-probability potential
opportunities to trade in the financial markets.

Technical analysis is a broad collection of methods and strategies which attempt to

forecast future prices on the basis of past prices or other observable market statistics, such as
volume or open interest. Different analysts/ traders may choose to use different types of
charts at different times, whether it is a line chart, a bar chart, a candlestick chart, a point-
and-figure chart, or any of a number of other chart types.
Technical analysis involve putting stock information like prices,
volumes and open interest on a chart and applying various patterns and indicators to it in
order to assess the future price movements. The time frame in which technical analysis is
applied may range from intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes
or hourly), daily, weekly or monthly price data to many years.
Technical analysis really just studies supply and demand in a market in an attempt to
determine what direction, or trend, will continue in the future. In other words, technical
analysis attempts to understand the emotions in the market by studying the market itself, as
opposed to its components. If you understand the benefits and limitations of technical
analysis, it can give you a new set of tools or skills that will enable you to be a better trader or
investor.

Definition:-
� According to technical analysis, the price of stock depends on demand and supply in the
market place.

� Technical analysis is the study of investor behaviour and its effect on the subsequent price
action of financial instruments. The main data that we need to perform our studies are the
price histories of the instruments, together with time and volume information. These
enable us to form our views, based on objective fact.

� Technical analysis is the study of investor behaviour & its effect on the subsequent price
action of financial instrument. It is the process of trying to interpret that supply & demand.

� It is the method of evaluating securities by analysing the statistics generated by market

activity, such as past prices & volume.

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 ASSUMPTIONS OF TECHNICAL ANALYSIS

1. The Market Discounts Everything

A major criticism of technical analysis is that it only considers price movement,
ignoring the fundamental factors of the company. However, technical analysis assumes that,
at any given a time, a stocks price reflects everything that has or could affect the company-
including Fundamental Factors
Factors. Technical analysts believe that the company’s
fundamentals, along with broader economic factors and market psychology, are all priced
market\ psychology
into the stock, removing the need to actually consider these factors separately.
This only leaves the analysis of price movement, which technical theory views as a
product of supply and demand for a particular stock in the market.

2. Price Moves In Trends

In technical analysis, price movements are believed to follow trends. This means that
after a trend has been established, the future price movement is more likely to be in the same
direction as the trend that to be against it. Most technical trading strategies are based on this
assumption.
3. History Tends To Repeat Itself
Another important idea in technical analysis is that history tends to repeat itself,
mainly in terms of price movement. The repetitive nature of price movement is attributed to
market psychology; in other words, market participants tend to provide a consistent reaction
to similar market stimuli over time. Technical analysis uses chats patterns to analyze market
movements and understand trends. Although many of\these charts have been use for more
than 100 years they are still believed to be relevant because they illustrate patterns in price
movements that often repeat themselves.

16
 Importance of Technical Analysis
� Not Just for stocks
Technical analysis has universal applicability. It can be applied to any fi nancial
instrument - stocks, futures and commodities, fi xed-income securities, forex, etc

� Focus on price
Fundamental developments are followed by price movements. By focusing only on
price action,
technicians focus on the future. The price pattern is considered as a leading indicator and
generally leads the economy by 6 to 9 months. To track the market, it makes sense to look
directly at the price movements. More often than not, change is a subtle beast. Even though
the market is prone to sudden unexpected reactions, hints usually develop before significant
movements. You should refer to periods of accumulation as evidence of an impending
advance and periods of distribution as evidence of an impending decline.

� Supply, demand, and price action

Technicians make use of high, low and closing prices to analyze the price action
of a stock. A good analysis can be made only when all the above information is present
Separately, these will not be able to tell much. However, taken together, the open, high, low
and close reflect forces of supply and demand.

� Support and resistance

Charting is a technique used in analysis of support and resistance level. These are
trading range in which the prices move for an extended period of time, saying that forces of
demand and supply are deadlocked. When prices move out of the trading range, it signals
that either supply or demand has started to get the upper hand. If prices move above the upper
band of the trading range, then demand is winning. If prices move below the lower band, then
supply is winning.

� Pictorial price history

history:-
A price chart offers most valuable information that facilitates reading historical amount
of security’s price movement over period of time charts are much easier to read than table of
numbers.It is easy to identify following-
- Past & present volatility
- Historical volume or trading volume
- Relative strength of stock Vs index

� Assist with entry point:-

It helps in tracking a proper entry point. Fundamental used to decide what to buy &
technical analysis is used to when to buy. Timing in this context plays a very important role
in performance. It can help spot demand ( support) & supply ( resistance)levels as well as
breakout.

17
 Weaknesses of Technical Analysis
� Analyst bias
Technical analysis is not hard core science. It is subjective in nature and your personal
biases can be reflected in the analysis. It is important to be aware of these biases when
analysing a chart. If the analyst is a perpetual bull, then a bullish bias will overshadow the
analysis. On the other hand, if the analyst is a disgruntled eternal bear, then the analysis will
probably have a bearish tilt.

� Open to interpretation
Technical analysis is a combination of science and art and is always 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. Is the cup half-empty or half-full? It is in the eye of the beholder.

� Too late
You can criticize the technical analysis for being too late. By the time the trend is
identified, a substantial move has already taken place. After such a large move, the reward to
risk ratio is not great. Lateness is a particular criticism of Dow Theory.

� Always another level

Technical analysts always wait for another new 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. Even if they are bullish, there is
always some indicator or some level that will qualify their opinion.
� Trader
Trader’’s remorse
An array of pattern and indicators arises while studying technical analysis. Not all the
signals work. 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. A 50-day moving average may work great to identify
support and resistance for Infosys, but a 70-day moving average may work better for
Reliance. Even though many principles of technical analysis are universal, each security will
have its own idiosyncrasies.

� TA is also useful in controlling risk

It is Technical Analysis only that can provide you the discipline to get out when
you’re on the wrong side of a trade. The easiest thing in the world to do is to get on the wrong
side of a trade and to get stubborn. That is also potentially the worst thing you can do. You
think that if you ride it out you’ll be okay. However, there will also be occasions when you
won’t be okay. The stock will move against you in ways and to an extent that you previously
found virtually unimaginable.

18
 TOOLS AND TECHNIQUES OF TECHNICAL ANALYSIS
There are numerous tools and techniques for doing technical analysis. Basically
this analysis is done from the following four important points of view:-

1)Prices:
Whenever there is change in prices of securities, it is reflected in the changes in
investor attitude and demand and supply of securities.

2) Time
The degree of movement in price is a function of time. The longer it takes for a
reversal in trend, greater will be the price change that follows.

3) Volume:
The intensity of price changes is reflected in the volume of transactions that
accompany the change. If an increase in price is accompanied by a small change in
transactions, it implies that the change is not strong enough. Volume is simply the number of
shares or contracts that trade over a given period of time, usually a day. The higher the
volume, the more active the security. To determine the movement of the volume (up or
down).

4) Width:
The quality of price change is measured by determining whether a change in trend
spreads across most sectors and industries or is concentrated in few securities only. Study of
the width of the market indicates the extent to which price changes have taken place in the
market in accordance with a certain overall trends.

Everything::
5) The Market Discounts Everything
A major criticism of technical analysis is that it only considers price movement,
ignoring the fundamental factors of the company. However, technical analysis assumes that,
at any given time, a stock's price reflects everything that has or could affect the company -
including fundamental factors. Technical analysts believe that the company's fundamentals,
along with broader economic factors and market psychology, are all priced into the stock,
removing the need to actually consider these factors separately. This only leaves the analysis
of price movement, which technical theory views as a product of the supply and demand for a
particular stock in the market

6) History Tends To Repeat Itself :

Another important idea in technical analysis is that history tends to repeat itself,
mainly in terms of price movement. The repetitive nature of price movements is attributed to
market psychology; in other words, market participants tend to provide a consistent reaction
to similar market stimuli over time. Technical analysis uses chart patterns to analyse market
movements and understand trends.

� Analyst bias
Technical analysis is not hard core science. It is subjective in nature and your personal
biases can be reflected in the analysis. It is important to be aware of these biases when
analysing a chart. If the analyst is a perpetual bull, then a bullish bias will overshadow the
analysis. On the other hand, if the analyst is a disgruntled eternal bear, then the analysis will
probably have a bearish tilt.

19
� Open to interpretation
Technical analysis is a combination of science and art and is always 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. Is the cup half-empty or half-full? It is in the eye of the beholder.

� Too late
You can criticize the technical analysis for being too late. By the time the trend is
identified, a substantial move has already taken place. After such a large move, the reward to
risk ratio is not great. Lateness is a particular criticism of Dow Theory.

� Always another level

Technical analysts always wait for another new 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. Even if they are bullish, there is
always some indicator or some level that will qualify their opinion.
� Trader
Trader’’s remorse
An array of pattern and indicators arises while studying technical analysis. Not all the
signals work. 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. A 50-day moving average may work great to identify
support and resistance for Infosys, but a 70-day moving average may work better for
Reliance. Even though many principles of technical analysis are universal, each security will
have its own idiosyncrasies.

� TA is also useful in controlling risk

It is Technical Analysis only that can provide you the discipline to get out when
you’re on the wrong side of a trade. The easiest thing in the world to do is to get on the wrong
side of a trade and to get stubborn. That is also potentially the worst thing you can do. You
think that if you ride it out you’ll be okay. However, there will also be occasions when you
won’t be okay. The stock will move against you in ways and to an extent that you previously
found virtually unimaginable

20
 Trend
Trend represent a constitunt change in prices ( i-e a change in investor expectations). Trends
differs from support or resistance levels in that represent change, where as support or
resistance levels represent barriers to change.
Dow theory provides us with a clear definition of trend. Dow described how prices
did not rise or fall in a straight line but moved in a series of zigzags which resembled waves
and it was the relative positioning of the peaks and troughs in these waves that defined the
trend.

1) Uptrend:-

A rising trend is defined by successively higher low-prices. A rising trend can be

thought of as rising support level the bulls in control & are pushing prices higher. Uptrend is
classified as series of higher highs & higher lows.

Notice how each successive peak and trough is located above the previous ones. For example,
the peak at trend is higher than the peak at uptrend. The uptrend will be deemed broken if the
next low on the chart falls below trend.

2) Downtrend :-
A falling trend is defined by successively lower high-prices. A falling trend can be
thought of as falling resistance level- the bears arre in control & are pushing price lower. A
downtrend line has a negative slope & is formed by connecting two or more high points. The
second high must be lower than first for line to have a negative slope .

21
 *-
Notice how each successive peak and trough is lower than the previous one. For example, the
low trend is lower than the low at Point. The downtrend will be deemed broken once the price
closes above the high at high direction trend.
Downtrend is the opposite of uptrend.
3) Support:-
It is the price level at which demand is thought to be strong enough to prevent
price from declining further. A decline below support indicates new willingness to sell or a
lack of incentive to buy. A support is the horizontal floor where interest in buying a
commodity is strong enough to overcome the pressure to sell. It is the price level at which
sufficient demand exist.

A support line refers to that level beyond which a stock’s price will not fall. It
denotes that
price level at which there is a sufficient amount of demand to stop and possibly, for a time,
turn a downtrend higher. Support does not always hold true and a break below support signals
that the bulls have lost over the bears. A fall below support level indicates more willingness
to sell and a lack of willingness to buy. A break in the levels of support indicates that the
expectations of sellers are reducing and they are ready to sell at even lower prices.
Logically as the price declines towards support and gets cheaper, buyers become
more inclined to buy and sellers become less inclined to sell. By the time the price reaches
the support level, it is believed that demand will overcome supply and prevent the price from
falling below support.

4) Resistance
It is horizontal ceiling where pressure to sell is greater than the pressure to buy. Thus
resistance level is price at which sufficient supply exist to, at least temporarily, at upward
movement, logically as price advance towards resistance, seller become more inclined to sell
&

22
buyer become less incline to buy. By the time the price reaches resistance level, it is believed
that supply will overcome demand & prevent the price from rising above resistance.
A resistance line refers to that line beyond which a stock’s price will not increase. It
indicates that price level at which a sufficient supply of stock is available to stop and possibly,
for a time, head off an uptrend in prices. Logically as the price advances towards resistance,
sellers become more inclined to sell and buyers become less inclined to buy.

5) Support and resistance zones:-

A stock’s price is determined by supply and demand. Bulls buy when the stock’s is
prices are too low and bears sell when the price reaches its maximum. Bulls increase the
prices by increasing the demand and bears decrease it by increasing the supply. The market
reaches a balance when bulls and bears agree on a price.
When prices are increasing upward, there exists a point at which the bears
become more aggressive the bulls begin to pull back - the market balances along the
resistance line. When prices are going downwards, the market balances along the support line.
As prices starts to decline toward the support line, buyers become more inclined to buy and
sellers start holding on to their stocks.
6) Breakout theory :-
Just as prices penetrate support & resistance levels when expectation change, price
can penetrate rising & falling trendline. It shows penetration of Merk’s falling trendline as
investors no longer expected lower price.
Break out is also called as ‘confirmation’. This is indicated by drawing a line, which is a
period of consolidation, when the share prices move sideways within a range of about 5% of
the share price. Eventually a break out will occur and it is often suggested that the longer the
period of consolidation, the greater will be the extent of ultimate rise or fall.
Volume increased when trendline was penetrate . this is an important confirmation
that previous trend is no longer intact.

23
Breakout is a signal for the investors who wish to buy or sell their stocks

Trader’’s remorse:-
7) Trader
Volume is the key to determining the significance of penetration of trend. volume
increased when the trend was penetrated, and was weak as the bulls tried to move prices
back above the trend line

8) DOW theory:-
The Dow Theory is one involving when to buy and when to sell. The two most
important terms in this theory are support, and resistance. When the market reaches a
peak and starts to fall, the peak where its high was reached is now known as a
resistance point. When the market starts to rise back to the resistance point, the lowest
point of the valley just created is known as the support. As the market nears the
resistance point the “test” will occur determining whether to sell or not. If the market
rises past the resistance area the market will probably continue to rise, but if the
market falls beyond the support area the market will most likely continue to fall and
the stock should be sold

24
 Some important term for new investor:-
Price Fields
Technical analysis is based almost entirely on the analysis of price and volume. The
fields which define a security's price and volume are explained below.
Open –
This is the price of the first trade for the period (e.g., the first trade of the day). When
analyzing daily data, the Open is especially important as it is the consensus price after all
interested parties were able to "sleep on it."
High –
This is the highest price that the security traded during the period. It is the point at which
there were more sellers than buyers (i.e., there are always sellers willing to sell at higher
prices, but the High represents the highest price buyers were willing to pay).
Low –
This is the lowest price that the security traded during the period. It is the point at which
there were more buyers than sellers (i.e., there are always buyers willing to buy at lower
prices, but the Low represents the lowest price sellers were willing to accept).
Close –
This is the last price that the security traded during the period. Due to its availability, the
Close is the most often used price for analysis. The relationship between the Open (the first
price) and the Close (the last price) are considered significant by most technicians. This
relationship is emphasized in candlestick charts.
Volume –
This is the number of shares (or contracts) that were traded during the period. The
relationship between prices and volume (e.g., increasing prices accompanied with increasing
volume) is important.
Open Interest –
This is the total number of outstanding contracts (i.e., those that have not been exercised,
closed, or expired) of a future or option. Open interest is often used as an indicator.
Bid –
This is the price a market maker is willing to pay for a security (i.e., the price you will
receive if you sell).
Ask –
This is the price a market maker is willing to accept (i.e., the price you will pay to buy
the security).
These simple fields are used to create literally hundreds of technical tools that study price
relationships, trends, patterns, etc.

25
 Market Watch: -
Market watch is very needed to predict the market. The stock holder, dealer as well as
analyst should give the regular market watch to the market, trading script. High, Low, Open,
Close are important terms which are shown, on market watch script or on trading terminal.

26
 Order placing-
It is important phase in technical analysis. There is asymmetry between zero & infinity.
What does it mean? Most of us have very finite capital but infinite opportunities because of
thousands of stocks . if we lose an opportunity, we will have thousands more tomorrow. If we
lose our capital, will we get thousands of opportunity? It is likely that we will not. It is simply
demand & supply management.
Buying order –
There is a special script for buying Order, which include the name of investment,
product type, price, trig price, quantity, type of exchange, name of investor etc.

Mostly buying script is in Green color

27
 Selling order –
There is a special script for buying Order, which include the name of investment ,
product type, price, trig price, quantity, type of exchange, name of investor etc. Mostly
buying script is in Red color.

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 Pattern of charts:-

There are three 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.
A chart gives us a complete picture of a stock’s price history over a period of
an hour, day, week, month or many years. It has an x-axis (horizontal) and a y-axis (vertical).
Typically, the x-axis represents time; the y-axis represents price

Line chart:-
“Line charts” are formed by connecting the closing prices of a specifi c stock or market
over a given period of time. Line chart is particularly useful for providing a clear visual
illustration of the trend of a stock’s price or a market’s movement. It is an extremely valuable
analytical tool which has been used by traders for past many years.
Line charts, especially for Elliott wave analysis. A line chart is the simplest of all
methods. It is constructed by joining together the closing price of each period, for example
daily closings for the daily
line chart, weekly closings for the weekly chart or monthly closings for the monthly line chart.

The line is formed by connecting the closing prices over the time frame. Line charts do not
provide visual information of the trading range for the individual points such as the high, low
and opening prices. A line chart's strength comes from its simplicity. It provides an
uncluttered, easy to understand view of a security's price. Line charts are typically displayed
using a security's closing prices.

Bar chart:-
A bar chart displays a security's open (if available), high, low, and closing prices. Bar charts
are the most popular type of security chart. The bar chart expands on the line chart by adding
several more key pieces of information to each data point. The chart is made up of a series of
vertical lines that represent each data point. This vertical line represents the high and low for
the trading period, along with the closing price. The close and open are represented on the

29
vertical line by a horizontal dash. The opening price on a bar chart is illustrated by the dash
that is located on the left side of the vertical bar. Conversely, the close is represented by the
dash on the right.
Bar chart is the most popular method traders use to see price action in a stock over a
given period of time. Such visual representation of price activity helps in spotting trends and
patterns.

Candle chart:-
A candlestick chart can be created using the data of high, low, open and closing prices
for each time period that you want to display. The hollow or fi lled portion of the candlestick
is called “the body” (also referred to as “the real body”). The long thin lines above and below
the body represent the high/low range and are called “shadows” (also referred to as “wicks”
and “tails”). The high is marked by the top of the upper shadow and the low by the bottom of
the lower shadow. If the stock closes higher than its opening price
price, a hollow candlestick is
drawn with the bottom of the body represents the opening price and the top of the body
representing the closing price. If the stock closes lower than its opening price
price, a filled
candlestick is drawn with the top of the body representing the opening price and the bottom
of the body representing the closing price.

30
Bull-

The Bulls A bull market is when everything in the economy is great, people are finding jobs,
gross domestic product (GDP) is growing, and stocks are rising. Picking stocks during a bull
market is easier because everything is going up. Bull markets cannot last forever though, and
sometimes they can lead to dangerous situations if stocks become overvalued. If a person is
optimistic and believes that stocks will go up, he or she is called a "bull" and is said to have a
"bullish outlook".

The Bears –

A bear market is when the economy is bad, recession is looming and stock prices are
falling. Bear markets make it tough for investors to pick profitable stocks. One solution to
this is to make money when stocks are falling using a technique called short selling. Another
strategy is to wait on the side lines until you feel that the bear market is nearing its end, only
starting to buy in anticipation of a bull market. If a person is pessimistic, believing that stocks
are going to drop, he or she is called a "bear" and said to have a bearish outlook.

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 1) Reversal pattern
Candlesticks primarily focus on trend reversals. Reversal patterns are indicators that the
previous trend is about to:

� Reverse,

� flatten out and continue,

� or flatten out and reverse

As you can see, reversal patterns can signal several different outcomes. This is why we need
to have a firm grip on reversal patterns before we proceed any further. Successful traders
have the ability to know what the trend is doing and is going to do. They do this by mastering
the ability to recognize reversal patterns and then implementing the knowledge gained to
improve their trading positions.

The main use of reversal patterns is to signal when to exit a trade. They should not
be used to signal when to enter a trade. The reason is because a reversal pattern can signal
that the trend is reversing
reversing, flattening and resuming or flattening and reversing
reversing. We must
wait until we get more information after the reversal pattern to make our move.

The reversal patterns that we will discuss are divided into two sections. Single candle
reversal indicators and multi-candle reversal indicators are:

A. Single Candle Reversal Indicators

� Hammer and Hanging Man

� Towers

1) Hammer :-

A bullish reversal pattern that forms during a downtrend. It is named because the
market is hammering out a bottom. A long lower shadow about two or three times the
length of the real body. Little or no upper shadow. The real body is at the upper end of
the trading range. The color of the real body is not important, however, a green body
is more bullish than a red body.

32
 Hammer candlesticks form when a security moves significantly lower after the
open, but rallies to close well above the intraday low. The resulting candlestick looks
like a square lollipop with a long stick. If this candlestick forms during a decline, then
it is called a Hammer. It indicates a reversal or a bottom is near in a downtrend and
when they appear at the top of an uptrend the name transforms to a Hanging man and
it indicates that a top is near. You need to know that there are three main
characteristics that they need in order to qualify.

1. The real body is at the upper end of the trading range and that the color (white or
black) is not important.

2. The lower part or the “shadow” should be at least twice the length of the real body.

3. It should have little or no upper shadow like a shaved head candle

33
 2) Hanging man :-
A bearish reversal pattern that will often mark a top or strong resistance level. When price is
rising, the formation of a hanging man indicates that sellers are beginning to outnumber the
buyers. The long lower shadow demonstrates that sellers pushed prices lower during the
session.

The hanging man appears during an uptrend, and its real body can be either black or white.
While it signifies a potential top reversal, it requires confirmation during the next trading
session. The hanging man usually has little or no upper shadow.

3) Towers:-
Towers are single candlestick reversal signals. There are bullish towers and bearish towers.

a) Bullish Tower:-
It occurs after a bearish trend, Bullish Towers are strong green candlesticks that have a low
that is the same as it’s open and closes at or near it’s high. Towers should be used to forecast
reversals. Bullish towers should forecast a rally. Bullish towers can be used to confirm
support. If a candlestick breaks the support level, look for the trend to end If the next
candlestick closes under the bullish tower, the reversal signal becomes void.

34
 b) Bearish Towers :-
It occurs after a bullish trend, Bearish Towers are strong red candlesticks that have a high that
is the same as it’s open and closes at or near it’s low. It should forecast a downtrend. If the
next candlestick closes above the bearish tower, the reversal signal becomes void.

Bearish towers can be used to confirm resistance. If a candlestick breaks the

resistance level, look for the trend to end.

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 B. Multi-Candle Reversal Indicators
� Engulfing Patterns

� Harami Patterns

� Tweezers Tops and Bottoms

� Head and Shoulders / Inverted Head and Shoulders

� Twin Tower Tops and Bottoms

1) Engulfing Patterns :-

Engulfing patterns are important reversal signals that are composed of two opposite color real
bodies. The second candlestick must be the opposite color and be larger than the previous
candlestick

There are several factors that we need to consider when evaluating the reliability of an
engulfing pattern. They are:

� If the first candlestick in the pattern is a doji or a very small real bodied candlestick, the
odds of a reversal occurring are increased. The reason being is because the doji or very
small real bodied candlestick represents the trend losing steam. The engulfing second
candlestick only supports this conclusion.

� If the engulfing pattern occurs after one or more large candlesticks, the odds of a reversal
occurring are increased. This occurs because the market is either overbought or oversold
which makes vulnerable to profit taking.

� If the engulfing candlestick is a high volume trading session, the odds of a reversal
occurring are increased.

a) Bullish Engulfing Pattern:-

It occurs during an uptrend, a is comprised of a red real body, then is engulfed by a
larger green real body. It is indicated when a white candle's real body completely covers the
previous black candle's real body. It is also relevant to note that the opening is lower than the
first candles real body and the close is above the first candles middle portion of the body. The
engulfing bullish pattern is bullish during a downtrend. It signifies that the momentum may
be shifting from the bears to the bulls.

36
Engulfing patterns primary use is to signal trend reversals, however, they can also be used to
offer support and resistance levels.Bullish engulfing patterns can offer support levels. Use the
lowest low of the two candlesticks.

There are three criteria for an engulfing pattern to be valid. They are-

� A bullish engulfing pattern must come after a downtrend.

� A bullish engulfing pattern must comprise of a red real body engulfed by a larger
green real body.

� The second candlestick must always engulf the first candlestick.

b) Bearish Engulfing Pattern :-

It have a distinct pattern. As you can see the engulfing bearish line is signaled where a black
candle's real body completely covers the previous white candle's real body. It is important to

37
note that the opening is higher than the first candles real body and the close is below the first
candles middle portion of the body. The engulfing bearish pattern occurs during an uptrend. It
signifies that the momentum may be shifting from the bulls to the bears. It occurs during a
downtrend, it is comprised of a green real body, then engulfed by a larger red real body.

There are two criteria for an engulfing pattern to be valid. They are:

� A bearish engulfing pattern must come after an uptrend

� A bearish engulfing pattern must comprise of a green real body engulfed by a larger
red real body.

� Bearish engulfing patterns can offer resistance levels. Use the highest high of the two
candlesticks

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2) The Harami Pattern:-
The Harami pattern is a small real bodied candlestick that is contained within a long real red
or green bodied candlestick. Harami is an old Japanese word meaning “pregnant”. The
Japanese have nicknames for the long real bodied candlestick “mother” and “baby” for the
small real bodied candlestick. Meaning, the first larger “mother” candlestick is giving birth to
the second smaller “baby” candlestick. The harami pattern can also be used as a support or
resistance level when paired with another harami.

Only the real body of the second candlestick must be within the larger first real body. You
don’t have two concentrate on the shadows.

a) The Bullish Harami :-

It must come after a bearish trend.The first candlestick in the pattern must be a tall real
bodied candlestick. The second candlestick in the pattern must be a small real bodied
candlestick.The two candlesticks do not need to be opposite colors, however, the odds of the
pattern being a valid reversal signal increase if they are opposite.

39
b) The Bearish Harami :-
It must come after a bullish trend. The first candlestick in the pattern must be a tall real
bodied candlestick. The second candlestick in the pattern must be a small real bodied
candlestick. The two candlesticks do not need to be opposite colors, however, the odds
of the pattern being a valid reversal signal increase if they are opposite

In an uptrend, a black (but preferably a white) body is followed by a small white or black
candle that is completely covered by the first candle body. A top reversal signal after
confirmation. White-black and white-white combinations are the most common.

40
3) Harami Cross :-
The harami cross pattern is composed of a long real bodied candlestick followed by a doji
candlestick. It is more powerful than the regular harami pattern. The reason being, the
smaller the second real bodied candlestick is the less steam the market has in that direction,
meaning a reversal is very likely. It should only be used to call top reversals.

4) Head & shoulder:-

The Head and Shoulders pattern is by far the most reliable and widely used of all reversal
patterns. This pattern indicates a reversal of an uptrend. This pattern occurs at the end of a
bull market and is characterised by two smaller advances flanking a higher advances just as
the head lies in between two shoulders. This is one of the most popular and reliable chart
patterns in technical analysis. It is a reversal chart pattern that when formed, signals that the
security is likely to move against the previous trend.

This differs from the double top in that the first evidence of its development is the
generation of a lower high rather than an equal high; in other words, sellers are beginning to
appear at lower levels than they did previously and the buyers no longer have the same
appetite at these higher levels as before.

There are several criteria for a head and shoulders that must take place in order for the
patterns to be valid reversal patterns. They are:

� The price must be at a high in order for a head and shoulders to occur.

� The high must be tested 3 times, without breaking the resistance level in order for a head
and shoulders to occur.

� The middle mountain top must be significantly higher than the other two mountains.

41
It occurs when the central mountain top is significantly higher than the others. The line drawn
from the two bottoms of the head is called the neckline. Typically, the neckline makes a great
resistance level.

5) Inverted Head and Shoulders :-

It is the same pattern only inverted. This pattern occurs when the central mountain bottom is
significantly lower than the others. The line drawn from the two tops of the inverted head is
called the inverted neckline. Typically, the inverted neckline makes a great support level.

There are several criteria for inverted head and shoulders that must take place in order for the
patterns to be valid reversal patterns. They are:

� The price must be at a low in order for an inverted head and shoulders to occur.

� The low must be tested 3 times, without breaking the support level in order for a head and
shoulders to occur.

� The middle mountain bottom must be significantly lower than the other two mountains.

42
6) Tweezer top & bottom:-
Two or more candles making highs together. Preferably, the highs are made with high prices,
but they also can be combinations of any of the other prices. Size and color are not important.
This is a reversal pattern that, most of the time, is part of another pattern.It occurs after a rally.
The pattern begins with a long green tower followed by several small bodied candlesticks,
finishing with a long red tower. Hence, the name twin tower tops.

There are three criteria for a twin tower top or bottom to be valid. They are:

� A twin tower top pattern must come after an uptrend.

� A twin tower top pattern must comprise of a long green real body followed by several
small bodied candlesticks, finishing with a long red real body.

� The twin towers must be significantly long real bodied candlesticks.

Twin Tower Bottoms occurs after a bearish trend. The pattern begins with a long red tower
followed by several small bodied candlesticks, finishing with a long green tower. Hence, the
name twin tower bottoms

There are two criteria for a twin tower top or bottom to be valid. They are:-

43
� A twin tower bottom pattern must come after a downtrend

� A twin tower bottom pattern must comprise of a long red real body followed by several
small bodied candlesticks, finishing with a long green real body.

7) Triple bottom & Triple Top:-

A pattern used in technical analysis to predict the reversal of a prolonged downtrend.
The pattern is identified when the price of an asset creates three troughs at nearly the same
price level. The third bounce off the support is an indication that buying interest (demand) is
outweighing selling interest (Supply) and that trend is in the process of reversing.

Once the first bottom is created, the price reaches a peak and retraces back toward the
prior support. This is when buyer enters again and pushes the price of the asset higher,
creating bottom No.2. The price of the asset then created another peak and heads lower for its
final test of the support. The final bounce of the support level creates bottom No.3 and traders
will get ready to enter a long position once the price breaks above the previous resistance
(Illustrated by the black on the chart). This pattern is considered to be a very reliable
indication that the downtrend has reversed and that the new trend in the upward direction.
Sudden change in the price direction of a stock, index, commodity or derivative security.
Also referred to as a “Trend Reversal”, “Rally” or “Correction”.

A pattern used in technical analysis to predict the reversal of prolonged up trend. This

pattern is identified when the price of an asset creates three peaks at nearly the same price
level. The bonus off the resistance near the third peak is clear indication that buying interest
is becoming exhausted. The traders to predict the reversal of the up trend use it.

44
The three consecutive tops make this pattern visually similar to the head and shoulders
pattern but, in this case, the middle peak is nearly equal to the other peak rather than being
higher. Many traders will enter into a short position once the price of asset falls below the
identified support level.

8) Shooting star:-
The Shooting Star is a single line pattern that indicates an end to the uptrend. It is easily
identified by the presence of a small body with a shadow at least two times greater than the
body. It is found at the top of an uptrend. The Japanese named this pattern because it looks
like a shooting star falling from the sky with the tail trailing it.

The upper shadow should be at least two times the length of the body. Prices gap open after
an uptrend. A small real body is formed near the lower part of the price range. The color of
the body is not important although a black body should have slightly more bearish
implications. The lower shadow is virtually non-existent. The following day needs to
confirm the Shooting Star signal with a black candle or better yet, a gap down with a lower
close.

During an uptrend, the market gaps open and rallies to a new high. The price opens
and trades higher. The bulls are in control. But before the close of the day, the bears step in
and take the price back down to the lower end of the trading range, creating a small body for
the day.

This could indicate that the bulls still have control if analysing a Western bar chart.
However, the long upper shadow represents that sellers had started stepping in at these levels.
Even though the bulls may have been able to keep the price positive by the end of the day, the

45
evidence of the selling was apparent. A lower open or a black candle the next day reinforces
the fact that selling is going on.

2) Star
The Star is called such when it is at the top of an up trend. It usually can signal a reversal.
Here again the color does not matter but the body should be at the lower end of the trading
range with a long shadow.

The significance here is that it shows the market opened near the low of the day then had an
explosive rally that failed and then closed back down near the low of the day. Usually there is
little or no lower shadow like a shaven bottom.

When it is at the bottom of a downtrend this is called an inverted Hammer. The color (white
or black) is not important. This is not a tremendously reliable candle as a bottom indicator on
it’s own. Usually a white candle opening above the inverted hammer’s body the next trading
session can verify the potential for a buy signal.

A small real body that gaps away from the large real body preceding it is known as star. It’s
still a star as long as the small real body does not overlap the preceding real body. The colour
of the star is not important. Stars can occur at tops or bottoms.

1) Morning Star
The morning star consists of three candlesticks:

1. A long black candlestick.

2. A small white or black candlestick that gaps below the close of the previous
candlestick. This candlestick can also be a doji, in which case the pattern would be a
morning doji star.

3. A long white candlestick.

The black candlestick confirms that the decline remains in force and selling dominates. When
the second candlestick gaps down, it provides further evidence of selling pressure. However,
the decline ceases or slows significantly after the gap and a small candlestick forms. The
small candlestick indicates indecision and a possible reversal of trend. If the small candlestick
is a doji, the chances of a reversal increase. The third long white candlestick provides bullish

46
confirmation of the reversal.

It is a major bottom reversal pattern that is a three candle formation. The first candle has
a long black real body; the second candle has a small real body that gaps lower than the first
candles body. If the second candle is a Doji then the formation leads to a stronger signal. The
third candle’s body sometimes gaps higher than the second one but does not happen often. It
is important that it is a white candle and closes well above the midpoint of the first candles
real body.

Let us understand what does doji? It has nearly the same opening as the closing price.
They indicate a change of direction. They aremore powerful as an indicator for a market top
(especially after a long white or hollow candlestick meaning themarket closed above the
open). They signify indecision and uncertainty. They can work to indicate bottoms butthere
are more signals needed to confirm a bottom using Doji.

2) Evening star-
It signals a major top. This is a three “candle” formation. The first one is normally a tall
white or hollow real body the second one is a small real body It can be white or black) this
gaps higher and can form star formation (a Doji can also be in the middle and that is
considered even more bearish). Anyway the third is a black candlestick and the important
concept here is to know that it should close well into the first candles real body.

The Evening Star is a top reversal pattern that occurs at the top of an uptrend. It is formed by
a tall white body candle, a second candle with a small real body that gaps above the first real
body to form a “star” and a third black candle that closes well into the first session’s white
real body.

47
This pattern is that a strong uptrend has been in effect. Buyers have been piling up the stock.
However, it is the level where sellers start taking profits or think the price is fairly valued.
The next day all the buying is being met with the selling, causing for a small trading range.
The bulls get concerned and the bears start taking over. The third day is a large sell off day.

48
 3) Some more pattern

1) Cup & handle pattern:-

This chart is a bullish continuation pattern in which the upward trend has paused but will
continue in an upward direction once the pattern is confirmed

This price pattern forms what looks like a cup, which is preceded by an upward trend. The
handle follows the cup formation and is formed by a generally downward/sideways
movement in the security's price. Once the price movement pushes above the resistance lines
formed in the handle, the upward trend can continue. There is a wide ranging time frame for
this type of pattern, with the span ranging from several months to more than a year.

2) Rounding bottom pattern:-

2)Rounding
A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern
that signals a shift from a downward trend to an upward trend. This pattern is traditionally
thought to last anywhere from several months to several years.

49
A rounding bottom chart pattern looks similar to a cup and handle pattern but without the
handle. The long-term nature of this pattern and the lack of a confirmation trigger, such as the
handle in the cup and handle, makes it a difficult pattern to trade.

3)Triangles:-
Triangles are some of the most well-known chart patterns used in technical analysis.
The three types of triangles, which vary in construct and implication, are the symmetrical
triangle, ascending and descending triangle. These chart patterns are considered to last
anywhere from a couple of weeks to several months.

50
The symmetrical triangle is a pattern in which two trend lines converge toward each other.
This pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend
in that direction. In an ascending triangle, the upper trend line is flat, while the bottom trend
line is upward sloping. This is generally thought of as a bullish pattern in which chartists look
for an upside breakout. In a descending triangle, the lower trend line is flat and the upper
trend line is descending. This is generally seen as a bearish pattern where chartists look for a
downside breakout.

4) Flag & pennant:-

These two short-term chart patterns are continuation patterns that are formed when there is a
sharp price movement followed by a generally sideways price movement. This pattern is then
completed upon another sharp price movement in the same direction as the move that started
the trend. The patterns are generally thought to last from one to three weeks.

There is little difference between a pennant and a flag. The main difference between these
price movements can be seen in the middle section of the chart pattern. In a pennant, the
middle section is characterized by converging trend lines, much like what is seen in a
symmetrical triangle. The middle section on the flag pattern, on the other hand, shows a
channel pattern, with no convergence between the trend lines. In both cases, the trend is
expected to continue when the price moves above the upper trend line.

51
Short term trading
Relative Strength Index (RSI)

The RSI is part of a class of indicators called momentum oscillators. There are a number of
indicators that fall in this category, the most common being Relative Strength Index,
Stochastic, Rate of Change, Williams %R. Although these indicators are all calculated
differently, there are a number of common elements to their use which shall be discussed in
the context of the RSI.

Momentum is simply the rate of change – the speed or slope at which a stock or
commodity ascends or declines. Measuring speed is a useful gage of impending change. An
oscillator is an indicator that moves back and forth across a reference line or between
prescribed upper and lower limits. When an oscillator reaches a new high, it shows that an
uptrend is gaining speed and is likely to continue. When an oscillator traces a lower peak, it
means that the trend has stopped accelerating and a reversal can be expected from there,
much like a car slowing down to make a U-Turn.

In the same way, RSI is a momentum oscillator generally used in sideways or

ranging markets where the price moves between support and resistance levels. It is one of the
most useful technical tool employed by many traders to measure the velocity of directional
price movement.

52
Overbought and Oversold
The RSI is a price-following oscillator that ranges between 0 and 100. Generally, technical
analysts use 30% oversold and 70% overbought lines to generate the buy and sell signals.

• Go long when the indicator moves from below to above the oversold line.

• Go short when the indicator moves from above to below the overbought line.
Note here that the direction of crossing is important; the indicator needs to first go past the
overbought/oversold lines and then cross back through them.

We can find in the below graph the RSI , the graph show the indicators which shows uptrend
single in start show buy single after confirming trend.

Then trend start gives sell single which means the change in trend . investor can book the
profit & came out sell.

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QUESTIONNARE
NAME: ________________________________________________________________
(1). NAME
ADDRESS: _____________________________________________________________
(2). ADDRESS
_______________________________________________________________________
(3). CONTACT NO NO. _________________________________________________________
(4). PROFESSION
PROFESSION: _________________________________________________________
SEX: _______________ (6). AGE
(5). SEX AGE: ______ (7). EDUCATION
EDUCATION: __________________
(6). Where do you invest your saving?
� Bank Mutual Fund Post Office
� Insurance Real Assets Govt. Bonds
� IPO Gold/Silver Stock Market
� If Others, Please specify.____________________________________
(7). If you invest in stock market, where do you invest your savings?
� Equity Derivatives Commodity
(8). How you reach at investment decision?
� Self analysis Tips from Experts
� Tips from friends/relatives
� Business channels Newspapers Other (Specify) _________
(9). Which factor plays a crucial role when you make a decision to invest in stock
Market?
� Risk Reduction Speculative Motive Leverage Benefit
� Investment Arbitrage Benefit
(10). Duration of attachment with commodity market?
� Less than 1 year 1 to 5 year
� 5 to 10 year
� More than 10 year
(11). Which of the following product prefer by you for your investment?
� Metal Crops Oil
� Cereals & Pulse Spices Energy
� Bullions If others, please specify _____
(12). Which type of trading you prefer to deal with?
� Square up mode Arbitrage Intraday

54
 Conclusion
Technical analysis is the study of behaviour of buyer & seller. It is very useful tool to capture
gain with the help of technical analysis. It is very important analysis is the study of investor
behaviour and its effect on the subsequent price action of financial instruments. The main
data that we need to perform our studies are the price histories of the instruments, together
with time and volume information.

Technical analysts examine the price action of financial markets instead of

fundamental factors that to effect to market prices. It is important to understand to enter in the
transaction & understand the trade management once you understand this psychology then it
is more easy to predict future & earn profit.

While it is time to rejoice at the booming Indian economy and the historical journey
of the Sensex, the foremost question in the minds of all investors is whether it is the right
time to buy or sell stocks now. The main rules are

1. Don't be greedy: Invest smartly, with some professional help and some study on your own.

2. Avoid 'hot tips': Use your own judgement.

3. Avoid trading/timing the market: 'timing' leads to huge monetary losses and mental tension.

4. Avoid actions based on sentiments: Don't be emotionally attached to stocks

5. Don't panic if the market drops: Be patient and hold on to the scrip until some semblance
of sanity prevails in the market. Consult a professional and then act accordingly.

6. Stay invested, possibly continue to invest more: It is natural to book profits with the
markets at higher levels. This should be done, but we suggest people should also stay
invested in the equity markets. Indian stocks do not appear over stretched at present,
considering that average price/earnings ratios -- a common measure of value – were around
15-16 times.

7. Diversify: diversify a bit, looking at stocks, mutual funds, commodities and gold (for a
longer-term). If equities pick up some of these stocks again.

8. Sell when value is realized: Some stocks may rise sooner than you may have anticipated.
In a frenzied bull run, investors may see their target prices being met in a matter ofdays. Here
time should not be of any consequence.

These rules are frequently used in technical analysis. The rules are clear and consistent but
they are difficult to use in practise. Much experience is needed to use them. The investor
always kept in the mind we have limited capital but the unlimited opportunity. Once you lose
the capital you cannot opportunity. But if you lose opportunity then hundreds of other
opportunity waiting for us.

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 Findings
I am fortunate to work with share khan ltd. In Buldana they recently launched new outlet in
2011. They will focus satisfy & better service. In Buldana investor more focus on intraday
trading basically they are more willing to invest in SBIN, HDFC, GOLD, SILVER, KODAK
BANK, IDBI,& much more.

� During this period we found that SBIN follows the down trend . In intraday always
rise or decrease of Rs.50 .

� In IDBI shows RSI due to which overbought & oversold area formed. It create zone
due to which it is task to book profit. If traders had been selling overbought and
buying oversold indicators in a trading market, they would suffer a large loss on the
last trade. Traders would also find a growing number of oversold indicators and a
diminishing number of overbought signals using standard parameters.

� Share khan provide guideline as well as seminar to provide financial literacy which
provide his best peace of knowledge . once investor understand 5’s of trading then
they can grow like anything-

� Trade identification

� Trigger

� Target

� Tradable instrument

� Trade management

� In HDFC , it create zone as we seen in our last discussion & then after it follws the
uptrend.

� Be a student it is better opportunity for me to study the market with trade tiger
software, with the help this software trading make become easiest task.

� Share khan provide financial literally classes with the help of guideline & special
campaign .

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 Bibliography

� A to Z analysis by Steven Achelis.

� Technical analysis for short term trade by Martin J Pring.

� Technical analysis by Gerald Appel

� Essential of technical analysis for financial market by James Chen

� Mastering Technical analysis by John Brooks.

� Forex investment

� www.nseindia.com

� www.bseindia.com

� www.moneycontrol.com

� www.investopedia.com

� www.profitindicators.com

� www.stocata.com

� www.en.bookfi.org

� www.thepatternsite.com

� www.fineprint.com

� www.forexinvestment.com

� www.wikipedia.com

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