Professional Documents
Culture Documents
Introduction:
Technical analysis, or the use of past prices to predict future prices, has been
popular among investors and financial analysts despite its criticisms levelled
at it. All stock broking firms and major daily newspaper analyze and publish
technical commentary on the performance of the market as whole and
selected stocks on a daily basis. Public seminar and consulting firms that
solely based on technical analysis are even formed.
In today’s world companies become known or considered big when they are
listed on reputed Stock Exchanges namely NSE (NIFTY) & BSE (SENSEX)
for India, Dowjones for USA, HANGSENG for Hong Kong, NIKKEI for
Japan, RTS for Russia etc.
But this uncertainty of the price gives people a chance to make money both
in long term & short term. Long term investment is mainly based upon
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studying fundamentals of the company and its growth potential. A general
investor can apply the principles by using the simplest of tools: pocket
calculator, pencil, ruler, chart paper & your cautious mind, watchful
attention. It should be pointed out that, this analysis does not discuss how to
buy & sell shares, but does discuss a method which enables the investor to
arrive at buying & selling decision. The financial analysts always need
yardsticks to evaluate the efficiency & performances of any business unit at
the time of investment. Fundamental analysis is useful in long term
investment decision. In Fundamental analysis company s goodwill, its
performances, liquidity, leverage, turnover, profitability & financial health
was checked & analysis with the help of ratio analysis for the purpose of
long term successful investment.
Technical analysis refers to the study of market generated data like prices &
volume to determine the future direction of prices movements. Technical
analysis mainly seeks to predict the short term price travels. The focus of
technical analysis is mainly on the internal market data, i.e. prices & volume
data. The real piece of magic lies in making money by trading shares either
Intraday or holding for a short term It appeals mainly to short term traders. If
one wants to make money in this way he / she needs to know the technical
side of the stock i.e. charts, trends etc. This analysis uses varied technical
patterns and indicators for predicting future prices and trends in the stock.
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4. Why is hedging required / how is it done?
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2.Literature Review:
Technical analysis is explained by “The technical approach to investigate is
essentially a reflection of the ides prices moves in trends which determined
by the changing attitudes of the investors toward a variety of economic,
monitory, political and psychological forces. Technical analyst do not
attempts to measure a security’s intrinsic value, but instead use charts to
identify the patterns that can suggest future activity. Testing of technical
analysis is important to enjoy the benefits. William sharpe said “if you
torture the data long enough, it will confess to any crime” so the important is
the rule must work on data other than that used to discover it.
There are many evidence to support technical analysis, in July 1990 journal
of finance article, Jaegadeesh found predictable patterns in monthly returns
for the period 1934 to 1987. his study reveals that stocks with large losses in
one month tend to show a significant reversal in the following month and
vice versa. In December 2002 journal of finance article Lo, Mamaysky, and
Wang found that several technical indicators have some practical value as
they provide incremental information.
Brown and Jennings (1989) showed that technical analysis has value in a
model in which prices are not fully revealing and traders have rational
conjectures about the relation between prices and signals.
Frankel and Froot (1990) showed evidence for the rising importance of
chartists.
Neftci (1991) showed that a few of the rules used in technical analysis
generate well-defined techniques of forecasting, but even well-defined rules
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were shown to be useless in prediction if the economic time series is
Gaussian. However, if the processes under consideration are non-linear, then
the rules might capture some information. Tests showed that this may indeed
be the case for the moving average rule.
Taylor and Allen (1992) report the results of a survey among chief foreign
exchange dealers based in London in November 1988 and found that at least
90 per cent of respondents placed some weight on technical analysis, and
that there was a skew towards using technical, rather than fundamental,
analysis at shorter time horizons.
Blume, Easley and O’Hara (1994) show that volume provides information
on information quality that cannot be deduced from the price. They also
show that traders who use information contained in market statistics do
better than traders who do not.
Kavajecz and Odders-White (2004) show that support and resistance levels
coincide with peaks in depth on the limit order book 1 and moving average
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forecasts reveal information about the relative position of depth on the book.
They also show that these relationships stem from technical rules locating
depth already in place on the limit order book.
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3.Objective of Study:
The professional objectives which are being covered by me in this project
are as following-
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4.Methodology:
a) The study:
For example, any large brokerage, trading group, or financial institution will
typically have both a technical analysis and fundamental analysis team.
Just as there are many investment styles on the fundamental side, there are
also many different types of technical traders. Some rely on chart patterns;
others use technical indicators and oscillators, and most use some
combination of the two. In any case, technical analysts' exclusive use of
historical price and volume data is what separates them from their
fundamental counterparts. Unlike fundamental analysts, technical analysts
don't care whether a stock is undervalued - the only thing that matters is a
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security's past trading data and what information this data can provide about
where the security might move in the future.
The major technical indicators will be uses for the study are:
When calculating successive values, a new value comes into the sum and an
old value drops out, meaning a full summation each time is unnecessary,
In technical analysis there are various popular values for n, like 10 days, 40
days, or 200 days. The period selected depends on the kind of movement one
is concentrating on, such as short, intermediate, or long term. In any case
moving average levels are interpreted as resistance in a rising market, or
support in a falling market.
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exponentially, never reaching zero. The formula for calculating the
EMA at time periods t > 2 is
Where:
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Typical values for N and K are 20 and 2, respectively. The default choice for
the average is a simple moving average, but other types of averages can be
employed as needed. Exponential moving averages are a common second
choice. Usually the same period is used for both the middle band and the
calculation of standard deviation.
And many other indicators and Patterns will be used for the purpose.
b) The Sample:
For the purpose of this study a sample size of 3 real estate companies
(UNITECH Limited, DLF Limited and Housing Development &
Infrastructure Limited (HDIL)) listed in the NSE and they were the most
active securities during the year 2009-2010. The data of the companies are
then constructed with help of information available on their websites and on
the other financial service providers’ website. The technical parameters
being used in the study are the different patterns and indicators like moving
average, Moving Average Convergence and Divergence (MACD), relative
strength index (RSI), Stochastic Oscillator, Bollinger bands, Commodity
Channel Index (CCI) etc. and the patterns like Double Top, Double Bottom,
Head and Shoulder Bottom Reversal / Top Reversal, Rounding Top,
Rounding Bottom, Flag and Pennant continuation, Triangles ( ascending,
descending and symmetrical), Wedges, Megaphone Patterns etc.
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C) The Tools
This step helps in deciding and selecting the techniques that shall be used to
collect relevant information which can be used to solve the research
problem. The techniques used by me for data collection are:
• Secondary data
• Tertiary data
SECONDARY DATA
Secondary data means data are already available i.e., they refer to the data,
which have already been collected and analyzed by someone else.
Internet
Books
Newspapers
Publication of various associations
Research reports
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• Accumulation/Distribution
• Bollinger Bands
• Commodity Channel Index:
• MACD
• Momentum
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5.References:
BIBLIOGRAPHY
WEBLIOGRAPHY
Moneycontrol.com
www.nseindia.com
www. Chittorgarh.com
Profit.ndtv.com
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www.investopedia.com
Websites of each Company.
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