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Dissertation Submitted to the
in partial fulfilment of the requirements for the award of the Degree of
MASTERS of MANAGEMENT STUDIES
VISHAL SOPANRAO NABDE
Institute of Management Studies, Karjat
University of Mumbai
I hereby declare that the dissertation “Technical Analysis” submitted
for the Master’s of Management Studies (M.M.S.) Degree at Mumbai
Institute of Management Studies,
Karjat, is my original work and the dissertation has not formed the
basis for the award of any degree, associate ship, fellowship or any
other similar titles.
Signature of the Student
This is to certify that the dissertation entitled “TECHNICAL
ANALYSIS” is the bonafide research work carried out by Mr. Vishal
Nabde student of MMS, at IBSAR®
Institute of Management Studies,
Karjat during the year 2008 -2010, in partial fulfilment of the
requirements for the award of the Degree of Master of Management
Studies and that the dissertation has not formed the basis for the award
previously of any degree, diploma, associate ship, fellowship or any other
(Dr. Jayanti Gokhale
Institute of Management Studies, Karjat)
(Dr. M.L. Moonga,
Institute of Management Studies, Karjat)
In the first place, I thank Mr. K.K. Surendranathan for having given me
his valuable guidance for the project. Without his help it would have
been impossible for me to complete the project.
I would be failing in my duty if I do not acknowledge with a deep sense
of gratitude the sacrifices made by my parents and thus have helped me
in completing the project work successfully.
Signature of the student.
WHAT’S THIS EQUITY ANALYSIS?
Professional investor will make more money & less loss than, who let
their heart rule. Their head eliminate all emotions for decision making. Be
ruthless & calculating, you are out to make money. Decision should be based
on actual movement of share price measured both in money & percentage
term & nothing else. Greed must be avoided
patience may be a virtue, but impatience can frequently be profitable.
In Equity Analysis anticipated growth, calculations are based on considered
FACTS & not on HOPE. Equity analysis is basically a combination of two
independent analyses, namely fundamental analysis & Technical analysis.
The subject of Equity analysis, i.e. the attempt to determine future share price
movement & its reliability by references to historical data is a vast one,
covering many aspect from the calculating various FINANCIAL RATIOS,
plotting of CHARTS to extremely sophisticated indicators.
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 equity 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 a company s
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. It appeals mainly to short term traders.
It is the oldest approach to equity investment dating back to the late
Assumptions for the Equity Analysis.
1. Works only in normal share-market conditions with great reliability, it also
works in abnormal share-market conditions, but with low reliability.
2. Equity analysis is purely based on the INVESTMENT PHILOSOPHY , so
the investment object has vital importance associated to return along with
3. Cash management gets the magnitude role, because the scenario of equity
analysis is revolving around the term money
4. Portfolio management, risk management was up to the investor s
5. Capital market trend is always a friend, whether it is short run or long run.
6. You are buying stock & not companies, so don t be curious or panic to do
post-mortem of companies performances.
7. History repeats: investors & speculators react the same way to the same
types of events homogeneously.
8. Capital market has a typical market psychology along with other issues
like; perceptions, the crowd Vc the individual, tradition s & trust.
9. An individual perceptions about the investment return & associated risk
may differ from individual to individual.
10. Although the equity analysis is art as well as sciences so, it also has some
ENVIRONMENT & ECONOMICAL ANALYSIS.
Technical analysis :-
“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.
It is important criteria for selecting the company to invest. It also provides
the base for decision-making in investment. The one of the most frequently
used yardstick to check & analyze underlying price progress. For that matter
a verity of tools was consider.
This Technical analysis is helpful to general investor in many ways. It
provides important & vital information regarding the current price position of
Technical analysis involves the use of various methods for charting,
calculating & interpreting graph & chart to assess the performances & status
of the price. It is the tool of financial analysis, which not only studies but also
reflecting the numerical & graphical relationship between the important
The focus of technical analysis is mainly on the internal market data,
i.e. prices & volume data. It appeals mainly to short term traders. It is the
oldest approach to equity investment dating back to the late 19th century.
It uses charts and computer programs to study the stock’s trading
volume and price movements in the hope of identifying a trend.
In fact the decision made on the basis of technical analysis is done only
after inferring a trend and judging the future movement of the stock on
the basis of the trend. Technical Analysis assumes that the market is efficient
and the price has already taken into consideration the other factors related to
the company and the industry. It is because of this assumption that many
think technical analysis is a tool, which is effective for short-term investing.
History of Technical Analysis:
Technical Analysis as a tool of investment for the average investor
thrived in the late nineteenth century when Charles Dow, then editor of the
Wall Street Journal, proposed the Dow theory. He recognized that the
movement is caused by the action/reaction of the people dealing in stocks
rather than the news in itself.
Technical analysis is a method of evaluating securities by analyzing
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. Just as there are many investment styles on the fundamental side,
there are also many different types of technical traders. Some rely on chart
patterns, others use technical indicators and oscillators, and most use some
combination of the two. In any case, technical analysts' exclusive use of
historical price and volume data is what separates them from their
fundamental counterparts. Unlike fundamental analysts, technical analysts
don't care whether a stock is undervalued the only thing that matters is a
security's past trading data and what information this data can provide about
where the Security might move in the future.
Basic premises of technical analysis:
1. Market prices are determined by the interaction of supply & demand
2. Supply & demand are influenced by variety of supply & demand affiliated
factors both rational & irrational.
3. These include fundamental factors as well as psychological factors.
4. Barring minor deviations stock prices tend to move in fairly persistent
5. Shifts in demand & supply bring about change in trends.
6. This shift s can be detected with the help of charts of manual &
computerized action, because of the persistence of trends & patterns analysis
of past market data can be used to predict future prices behaviors.
Drawbacks / limitations of technical analysis:
1. Technical analysis does not able to explain the rezones behind the
employment or selection of specific tool of Technical analysis.
2. The technical analysis failed to signal an uptrend or downtrend in time.
3. The technical analysis must be a self defeating proposition. As more &
more people use, employ it the value of such analysis trends to reduce.
Why we use TECHNICAL ANALYSIS?
1) Technical analysis provides information on the best entry and
exit points for a trade.
2) On a chart, the trader can see where momentum is rising, a
trend is forming, a price is dipping or other events are developing that show
the best entry point and time for the most profitable trade. With the constant
movement of various currencies against each other in the Forex market, most
traders will focus on using technical indicators to find and place their
IS TECHNICAL ANALYSIS DIFFICULT?
1) Technical analysis is not difficult, but it requires studying
different types of charts such as the hourly or daily charts,
knowing which technical indicators to use and how to use them.
2) Computers and the Internet have made this process much easier.
Most brokers provide basic charts and technical indicators for
free or at a very low cost.
3) One way to avoid getting frustrated by all the lines, colors, and
graphics is to focus on using only a few indicators that will
provide you with the information needed. Try not to clutter your
chart with too much information.
Fundamental vs. Technical Analysis
Technical analysis and fundamental analysis are the two main schools
of thought in the financial markets. As we've mentioned, technical analysis
looks at the price movement of a security and uses this data to predict its
future price movements. Fundamental analysis, on the other hand, looks at
economic factors, known as fundamentals.
Fundamental analysis takes a relatively long-term approach to
analyzing the market compared to technical analysis. While technical
analysis can be used on a timeframe of weeks, days or even minutes,
fundamental analysis often looks at data over a number of years.
The future can be found in the past
If prices are based on investor expectations, then knowing what a
security should sell for (i.e., fundamental analysis) becomes less important
than knowing what other investors expect it to sell for. That's not to say that
knowing what a security should sell for isn't important--it is. But there is
usually a fairly strong consensus of a stock's future earnings that the average
investor cannot disprove.
Technical analysis is the process of analyzing a security's historical
prices in an effort to determine probable future prices. This is done by
comparing current price action (i.e., current expectations) with comparable
historical price action to predict a reasonable outcome. The devout technician
might define this process as the fact that history repeats itself while others
would suffice to say that we should learn from the past.
Usually the following tools & instruments are used to do
the technical analysis:
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
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).
Price in a chart can be displayed in four styles:
1. Bar Chart.
2. Line Chart.
3. Candlestick Chart.
4. Point and Figure Charts
1) Bar Charts :
The highs and lows of a foreign currency are plotted in a diagram and the
points are joined with vertical lines (bars). A small horizontal tick to the left
denotes the opening level while a small horizontal tick to the right represents
the closing price of each interval.
2) Line Chart.
It gives the detailed information about every aspect.
The exchange rates for each time period are plotted in a diagram and the
points are joined. Prices on the y-axis, time on the x-axis.
The line chart chooses for example the closing price of consecutive time
periods, but can also work with daily, official fixings.
The relatively easy handling of line charts is a great advantage. Line charts
do not show price movements within a time period. This can be a problem
because important information for exchange rate analysis can be lost. This
problem was remedied with the development of bar charts that represent a
more sophisticated form of line chart.
3) Candlestick Chart.
A candlestick is black if the closing price is lower than the opening price. A
candlestick is white if the closing price is higher than the opening price.
In the 1600s, the Japanese developed a method of technical analysis to
analyze the price of rice contracts. This technique is called candlestick
charting. Steven Nison is credited with popularizing candlestick charting
and has become recognized as the leading expert on their interpretation.
Candlestick charts display the open, high, low, and closing prices in a format
similar to a modern-day barchart, but in a manner that extenuates the
relationship between the opening and closing prices. Candlestick
charts are simply a new way of looking at prices, they don't involve any
calculations. Because candlesticks display the relationship between the open,
high, low, and closing prices, they cannot be displayed on securities that only
have closing prices, nor were they intended to be displayed on securities
that lack opening prices.
The interpretation of candlestick charts is based primarily on patterns. The
most popular patterns are explained below.
1) Long white (empty) line. This is a bullish line. It occurs when prices
open near the low and close significantly higher near the period's high.
2) Hammer. This is a bullish line if it occurs after a significant
downtrend. If the line occurs after a significant up-trend, it is called a
Hanging Man. A Hammer is identified by a small real body (i.e., a
small range between the open and closing prices) and a long lower
shadow (i.e., the low is significantly lower than the open, high, and
lose). The body can be empty or filled-in.
3) Piercing line. This is a bullish pattern and the opposite of a dark cloud
cover. The first line is a long black line and the second line is a long
white line. The second line opens lower than the first line's low, but it
closes more than halfway above the first line's real body.
4) Bullish engulfing lines. This pattern is strongly bullish if it occurs
after a significant downtrend (i.e., it acts as a reversal pattern). It
occurs when a small bearish (filled-in) line is engulfed by a large
bullish (empty) line.
5) Morning star. This is a bullish pattern signifying a potential bottom.
The "star" indicates a possible reversal and the bullish (empty) line
confirms this. The star can be empty or filled-in.
6) Bullish doji star. A "star" indicates a reversal and a doji indicates
indecision. Thus, this pattern usually indicates a reversal following an
indecisive period. You should wait for a confirmation (e.g., as in the
morning star, above) before trading a doji star. The first line can be
empty or filled in.
1) Long black (filled-in) line. This is a bearish line. It occurs when
prices open near the high and close significantly lower near the
2) Hanging Man. These lines are bearish if they occur after a significant
uptrend. If this pattern occurs after a significant downtrend, it is called
a Hammer. They are identified by small real bodies (i.e., a small range
between the open and closing prices) and a long lower shadow (i.e.,
the low was significantly lower than the open, high, and close). The
bodies can be empty or filled-in.
3) Dark cloud cover. This is a bearish pattern. The pattern is more
significant if the second line's body is below the center of the previous
line's body (as illustrated).
4) Bearish engulfing lines. This pattern is strongly bearish if it occurs
after a significant uptrend (i.e., it acts as a reversal pattern). It occurs
when a small bullish (empty) line is engulfed by a large bearish (filled-
5) Evening star. This is a bearish pattern signifying a potential top. The
"star" indicates a possible reversal and the bearish (filled-in) line confirms
this. The star can be empty or filledin.
5) Doji star. A star indicates a reversal and a doji indicates indecision.
Thus, this pattern usually indicates a reversal following an indecisive
period. You should wait for a confirmation (e.g., as in the evening star
illustration) before trading a doji star.
6) Shooting star. This pattern suggests a minor reversal when it appears
after a rally. The star's body must appear near the low price and the
line should have a long upper shadow.
1) Long-legged doji. This line often signifies a turning point. It occurs
when the open and close are the same, and the range between the high
and low is relatively large.
2) Dragon-fly doji. This line also signifies a turning point. It occurs when
the open and close are the same, and the low is significantly lower than
the open, high, and closing prices.
3) Gravestone doji. This line also signifies a turning point. It occurs when
the open, close, and low are the same, and the high is significantly higher
than the open, low, and closing prices.
4) Star. Stars indicate reversals. A star is a line with a small real body that
occurs after a line with a much larger real body, where the real bodies do
not overlap. The shadows may overlap.
5) Doji star. A star indicates a reversal and a doji indicates indecision.
Thus, this pattern usually indicates a reversal following an indecisive
period. You should wait for a confirmation (e.g., as in the evening star
illustration) before trading a doji star.
1) Spinning tops. These are neutral lines. They occur when the
distance between the high and low, and the distance between the
open and close, are relatively small.
2) Doji. This line implies indecision. The security opened and closed
at the same price. These lines can appear in several different
patterns. Double doji lines (two adjacent doji lines) imply that a
forceful move will follow a breakout from the current indecision.
3) Harami ("pregnant" in English). This pattern indicates a
decrease in momentum. It occurs when a line with a small body
falls within the area of a larger body. In this example, a bullish
(empty) line with a long body is followed by a weak bearish
(filledin) line. This implies a decrease in the bullish momentum.
4) Harami cross. This pattern also indicates a decrease in momentum.
The pattern is similar to a harami, except the second line is a doji
4 ) Point And Figure Charts
The point and figure chart is not well known or used by the average investor but it has had a long history of
use dating back to the first technical traders. This type of chart reflects price movements and is not as concerned
about time and volume in the formulation of the points. The point and figure chart removes the noise, or insignificant
price movements, in the stock, which can distort traders' views of the price trends. These types of charts also try to
neutralize the skewing effect that time has on chart analysis.
When first looking at a point and figure chart, you will notice a series of Xs
and Os. The Xs represent upward price trends and the Os represent
downward price trends. There are also numbers and letters in the chart; these
represent months, and give investors an idea of the date. Each box on the
chart represents the price scale, which adjusts depending on the price of the
stock: the higher the stock's price the more each box represents. On most
charts where the price is between $20 and $100, a box represents $1, or 1
point for the stock. The other critical point of a point and figure chart is the
reversal criteria. This is usually set at three but it can also be set according to
the chartist's discretion. The reversal criteria set how much the price has to
move away from the high or low in the price trend to create a new trend or, in
other words, how much the price has to move in order for a column of Xs to
become a column of Os, or vice versa. When the price trend has moved from
one trend to another, it shifts to the right, signalling a trend change.
TRENDS IN TECHNICAL ANALYSIS
The Use of Trends
One of the most important concepts in technical analysis is that of
trend. The meaning in finance isn't all that different from the general
definition of the term - a trend is really nothing more than the general
direction in which a security or market is headed. Take a look at the
Isn’t it hard to see that the trend is up. However, it's not always this easy to see a trend:
There are lots of ups and downs in this chart, but there isn't a clear
indication of which direction this security is headed.
A More Formal Definition
Unfortunately, trends are not always easy to see. In other words,
defining a trend goes well beyond the obvious. In any given chart, you
will probably notice that prices do not tend to move in a straight line in
any direction, but rather in a series of highs and lows. In technical
analysis, it is the movement of the highs and lows that constitutes a
trend. For example, an uptrend is classified as a series of higher highs
and higher lows, while a downtrend is one of lower lows and lower
It is an example of an uptrend. Point 2 in the chart is the first high, which is determined after the price falls from this
point. Point 3 is the low that is established as the price falls from the high. For this to remain an uptrend each
successive low must not fall below the previous lowest point or the trend is deemed a reversal.
Types of Trend
There are three types of trend:
As the names imply, when each successive peak and trough is higher,
it's referred to as an upward trend. If the peaks and troughs are getting lower,
it's a downtrend. When there is little movement up or down in the peaks and
troughs, it's a sideways or horizontal trend. If you want to get really
technical, you might even say that a sideways trend is actually not a trend on
its own, but a lack of a well-defined trend in either direction. In any case, the
market can really only trend in these three ways: up, down or nowhere.
Along with these three trend directions, there are three trend
classifications. A trend of any direction can be classified as a long-
term trend, intermediate trend or a short-term trend. In terms of the
stock market, a major trend is generally categorized as one lasting
longer than a year. An intermediate trend is considered to last between
one and three months and a near-term trend is anything less than a
month. A long-term trend is composed of several intermediate trends,
which often move against the direction of the major trend. If the major
trend is upward and there is a downward correction in price movement
followed by a continuation of the uptrend, the correction is considered
to be an intermediate trend. The short-term trends are components of
both major and intermediate trends. Take a look a Figure 4 to get a
sense of how these three trend lengths might look.
When analyzing trends, it is important that the chart is constructed to
bestreflect the type of trend being analyzed. To help identify long-term
trends, weekly charts or daily charts spanning a five-year period are
used by chartists to get a better idea of the long-term trend. Daily data
charts are best used when analyzing both intermediate and short-term
trends. It is also important to remember that the longer the trend, the
more important it is; for example, a one-month trend is not as
significant as a five-year trend.
A trend line is a simple charting technique that adds a line to a
chart to represent the trend in the market or a stock. Drawing a trend
line is as simple as drawing a straight line that follows a general trend.
These lines are used to clearly show the trend and are also used in the
identification of trend reversals.
An upward trend line is drawn at the lows of an upward trend. This line represents the support the
stock has every time it moves from a high to a low. Notice how the price is propped up by this support.
This type of trend line helps traders to anticipate the point at which a stock's price will begin moving
upwards again. Similarly, a downward trend line is drawn at the highs of the downward trend. This line
represents the resistance level that a stock faces every time the price moves from a low to a high.
A channel, or channel lines, is the addition of two parallel trend lines that act as strong areas of
support and resistance. The upper trend line connects a series of highs, while the lower trend line
connects a series of lows. A channel can slope upward, downward or sideways but, regardless of the
direction, the interpretation remains the same. Traders will expect a given security to trade between the
two levels of support and resistance until it breaks beyond one of the levels, in which case traders can
expect a sharp move in the direction of the break. Along with clearly displaying the trend, channels are
mainly used to illustrate important areas of support and resistance.
A descending channel on a stock chart; the upper trend line has been
placed on the highs and the lower trend line is on the lows. The price
has bounced off of these lines several times, and has remained range-
bound for several months. As long as the price does not fall below the
lower line or move beyond the upper resistance, the range-bound
downtrend is expected to continue.
The Importance Of Trend
It is important to be able to understand and identify trends so that you can trade with rather than against
them. Two important sayings in technical analysis are "the trend is your friend" and "don't buck the trend,"
illustrating how important trend analysis is for technical traders
IMPORTANCE OF VOLUME :-
What Is Volume?
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), chartists look at the
volume bars that can usually be found at the bottom of any
chart. Volume bars illustrate how many shares have traded per
period and show trends in the same way that prices do.
Why Volume Is Important?
Volume is an important aspect of technical analysis
because it is used to confirm trends and chart patterns. Any
price movement up or down with relatively high volume is seen
as a stronger, more relevant move than a similar move with
weak volume.Say, for example, that a stock jumps 5% in one
trading day after being in a long downtrend. Is this a sign of a
trend reversal? This is where volume helps traders. If volume is
high during the day relative to the average daily volume, it is a
sign that the reversal is probably for real. On the other hand, if
the volume is below average, there may not be enough
conviction to support a true trend reversal. Volume should move
with the trend. If prices are moving in an upward trend, volume
should increase (and vice versa). If the previous relationship
between volume and price movements starts to deteriorate, it is
usually a sign of weakness in the trend. For example, if the
stock is in an uptrend but the up trading days are marked with
lower volume, it is a sign that the trend is starting to lose its legs
and may soon end. When volume tells a different story, it is a
case of divergence, which refers to a contradiction between two
different indicators. The simplest example of divergence is a
clear upward trend on declining volume.
Volume And Chart Patterns
The other use of volume is to confirm chart patterns.
Patterns such as head and shoulders, triangles, flags and other
price patterns can be confirmed with volume, a process which
we'll describe in more detail later in this tutorial. In most chart
patterns, there are several pivotal points that are vital to what
the chart is able to convey to chartists. Basically, if the volume is
not there to confirm the pivotal moments of a chart pattern, the
quality of the signal formed by the pattern is weakened.
Volume Precedes Price
Another important idea in technical analysis is that price is
preceded by volume. Volume is closely monitored by technicians and
chartists to form ideas on upcoming trend reversals. If volume is
starting to decrease in an uptrend, it is usually a sign that the upward
run is about to end. Now that we have a better understanding of some
of the important factors of technical analysis, we can move on to
charts, which help to identify trading opportunities in prices
CHART PATTERNS :-
A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a sign of future
price movements. Chartists use these patterns to identify current trends and trend reversals and to trigger buy and
In the first section of this tutorial, we talked about the three assumptions of technical analysis, the third of
which was that in technical analysis, history repeats itself. The theory behind chart patters is based on this
assumption. The idea is that certain patterns are seen many times, and that these patterns signal a certain high
probability move in a stock. Based on the historic trend of a chart pattern setting up a certain price movement,
chartists look for these Patterns to identify trading opportunities. While there are general ideas and components to
every chart pattern, there is no chart pattern that will tell you with 100% certainty where a security is headed. This
creates some leeway and debate as to what a good pattern looks like, and is a major reason why charting is often
seen as more of an art than a science. There are two types of patterns within this area of technical
analysis, reversal and continuation. A reversal pattern signals that a prior trend will reverse upon completion of the
pattern. A continuation pattern, on the other hand, signals that a trend will continue once the pattern is complete.
These patterns can be found over charts of any timeframe. In this section, we will review some of the more Popular
1.Head And Shoulders
This is one of the most popular and reliable chart patterns in technical analysis. Head and shoulders is a
reversal chart pattern that when formed, signals that the security is likely to move against the previous trend. As you
can see , there are two versions of the head and shoulders chart pattern. Head and shoulders top (shown on the
left) is a chart pattern that is formed at the high of an upward movement and signals that the upward trend is about
to end. Head and shoulders bottom, also known as inverse head and shoulders (shown on the right) is the lesser
known of the two, but is used to signal a reversal in a downtrend.
Head and shoulders top is shown on the left. Head and shoulders bottom,
or inverse head and shoulders, is on the right.
Both of these head and shoulders patterns are similar in that there are four main parts: two shoulders, a head and a
neckline. Also, each individual head and shoulder is comprised of a high and a low. For example, in the head and
shoulders top image shown on the left side, the left shoulder is made up of a high followed by a low. In this pattern,
the neckline is a level of support or resistance. Remember that an upward trend is a period of successive rising
highs and rising lows. The head and shoulders chart pattern, therefore, illustrates a weakening in a trend by
showing the deterioration in the successive movements of the highs and lows.
2.Cup And Handle
A cup and handle chart is a bullish continuation pattern in which the upward trend has paused but will continue in an
upward direction once the pattern is confirmed.
The price pattern forms what looks like a cup, which is preceded by an
upward trend. The handle follows the cup formation and is formed by a
generally downward/sideways movement in the security's price. Once the
price movement pushes above the resistance lines formed in the handle, the
upward trend can continue.
3.Double Tops And Bottoms
This chart pattern is another well-known pattern that signals a trend reversal - it is considered to be one of the most
reliable and is commonly used. These patterns are formed after a sustained trend and signal to chartists that the
trend is about to reverse. The pattern is created when a price movement tests support or resistance levels twice
and is unable to break through. This pattern is often used to signal intermediate and long-term trend reversals.
A double top pattern is shown on the left, while a double bottom pattern
is shown on the right.In the case of the double top pattern, the price movement has twice tried to move
above a certain price level. After two unsuccessful attempts at pushing the price higher, the trend reverses and the
price heads lower. In the case of a double bottom (shown on the right), the price movement has tried to go lower
twice, but has found support each time. After the second bounce off of the support, the security enters a new trend
And heads upward.
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.
The symmetrical 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.
5.Flag And Pennants
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
The wedge chart pattern can be either a continuation or reversal
pattern. It is similar to a symmetrical triangle except that the wedge
pattern slants in an upward or downward direction, while the
symmetrical triangle generally shows a sideways movement. The other
difference is that wedges tend to form over longer periods, usually
between three and six months.
The fact that wedges are classified as both continuation and reversal patterns
can make reading signals confusing. However, at the most basic level, a
falling wedge is bullish and a rising wedge is bearish. We have a falling
wedge in which two trend lines are converging in a downward direction. If
the price was to rise above the upper trend line, it would form a continuation
pattern, while a move below the lower trend line would signal a reversal
7.Triple Tops And Bottoms
Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis. These are not as prevalent
in charts as head and shoulders and double tops and bottoms, but they act in a similar fashion. These two chart
patterns are formed when the price movement tests a level of support or resistance three times and is unable to
break through; this signals a reversal of the prior trend.
Confusion can form with triple tops and bottoms during the formation of the
pattern because they can look similar to other chart patterns. After the first
two support/resistance tests are formed in the price movement, the pattern
will look like a double top or bottom, which could lead a chartist to enter a
reversal position too soon.
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
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, make it a
SUPPORT AND RESISTANCE :-
Once you understand the concept of a trend, the next major concept is that of support and resistance.
You'll often hear technical analysts talk about the ongoing battle between the bulls and the bears, or the struggle
between buyers (demand) and sellers (supply). This is revealed by the prices a security seldom moves above
(resistance) or below (support).
Support is the price level through which a stock or market seldom falls
(illustrated by the blue arrows). Resistance, on the other hand, is the price
level that a stock or market seldom surpasses (illustrated by the Red Arrows).
These support and resistance levels are seen as important in terms of market psychology and supply and
demand. Support and resistance levels are the levels at which a lot of traders are willing to buy the stock (in the
case of a support) or sell it (in the case of resistance). When these trend lines are broken, the supply and demand
and the psychology behind the stock's movements is thought to have shifted, in which case new levels of support
and resistance likely be established.
Round Numbers and Support and Resistance:-
One type of universal support and resistance that tends to be
seen across a large number of securities is round numbers. Round
numbers like 10, 20, 35, 50, 100 and 1,000 tend be important in
support and resistance levels because they often represent the major
psychological turning points at which many traders will make buy or
Buyers will often purchase large amounts of stock once the price
starts to fall toward a major round number such as $50, which makes
it more difficult for shares to fall below the level. On the other hand,
sellers start to sell off a stock as it moves toward a round number
peak, making it difficult to move past this upper level as well. It is the
increased buying and selling pressure at these levels that makes them
important points of support and resistance and, in many cases, major
psychological points as well.
Once a resistance or support level is broken, its role is reversed.
If the price falls below a support level, that level will become
resistance. If the price rises above a resistance level, it will often
become support. As the price moves past a level of support or
resistance, it is thought that supply and demand has shifted, causing
the breached level to reverse its role. For a true reversal to occur,
however, it is important that the price make a strong move through
either the support or resistance.
For example, as you can see, the dotted line is shown as a level of resistance that has prevented
the price from heading higher on two previous occasions (Points 1 and 2). However, once the resistance
is broken, it becomes a level of support (shown by Points 3 and 4) by propping up the price and
preventing it from heading lower again.
Many traders who begin using technical analysis find this concept hard to believe and don't realize that
this phenomenon occurs rather frequently, even with some of the most well-known companies. For
example, this phenomenon is evident on the Wal-Mart Stores Inc. (WMT) chart between 2003 and 2006.
Notice how the role of the $51 level changes from a strong level of support to a level of resistance.
In almost every case, a stock will have both a level of support and a
level of resistance and will trade in this range as it bounces between
The Importance Of Support And Resistance
Support and resistance analysis is an important part of trends because
it can be used to make trading decisions and identify when a trend is
Support and resistance levels both test and confirm trends and need to
be monitored by anyone who uses technical analysis. As long as the price of
the share remains between these levels of support and resistance, the trend is
likely to continue. It is important to note, however, that a break beyond a
level of support or resistance does not always have to be a reversal.
For example, if prices moved above the resistance levels of an upward trending channel, the trend have
accelerated, not reversed. This means that the price appreciation is expected to be faster than it was in the channel.
Being aware of these important support and resistance points should affect the way that you trade a stock. Traders
should avoid placing orders at these major points, as the area around them is usually marked by a lot of volatility. If
you feel confident about making a trade near a support or resistance level, it is important that you follow this simple
rule: do not place orders directly at the support or resistance level. This is because in many cases, the price never
actually reaches the whole number, but flirts with it instead. So if you're bullish on a stock that is moving toward an
important support level, do not place the trade at the support level. Instead, place it above the support level, but
within a few points. On the other hand, if you are placing stops or short selling, set up your trade price at or below
the level of support.
Summary of charts
MOVING AVERAGES :-
Most chart patterns show a lot of variation in price movement. This can make it difficult for
traders to get an idea of a security's overall trend. One simple method traders use to combat this is to
apply moving averages. A moving average is the average price of a security over a set amount of time. By
plotting a security's average price, the price movement is smoothed out. Once the day-to-day fluctuations
are removed, traders are better able to identify the true trend and increase the probability that it will work
in their favor.
Types Of Moving Averages:-
There are a number of different types of moving averages that vary in the way they are calculated, but how
each average is interpreted remains the same. The calculations only differ in regards to the weighting that they
place on the price data, shifting from equal weighting of each price point to more weight being placed on recent
data. The three most common types of moving averages are simple, linear and exponential.
1. Simple Moving Average (SMA)
This is the most common method used to calculate the moving average of prices. It simply takes the sum
of all of the past closing prices over the time period and divides the result by the number of prices used in the
calculation. For example, in a 10-day moving average, the last 10 closing prices are added together and then
divided by 10. As you can see in Figure 1, a trader is able to make the average less responsive to changing prices
by increasing the number of periods used in the calculation. Increasing the number of time periods in the calculation
is one of the best ways to gauge the strength of the long-term trend and the likelihood that it will reverse.
Many individuals argue that the usefulness of this type of average is limited
because each point in the data series has the same impact on the result
regardless of where it occurs in the sequence. The critics argue that the most
recent data is more important and, therefore, it should also have a higher
weighting. This type of criticism has been one of the main factors leading to
the invention of other forms of moving averages.
2. Linear Weighted Average
This moving average indicator is the least common out of the three and is used to address the problem of
the equal weighting. The linear weighted moving average is calculated by taking the sum of all the closing prices
over a certain time period and multiplying them by the position of the data point and then dividing by the sum of the
number of periods. For example, in a five-day linear weighted average, today's closing price is multiplied by five;
yesterday's by four and so on until the first day in the period range is reached. These numbers are then added
together and divided by the sum of the multipliers.
3. Exponential Moving Average (EMA)
This moving average calculation uses a smoothing factor to place a higher weight on recent data points
and is regarded as much more efficient than the linear weighted average. Having an understanding of the
calculation is not generally required for most traders because most charting packages do the calculation for you.
The most important thing to remember about the exponential moving average is that it is more responsive to new
information relative to the simple moving average. This responsiveness is one of the key factors of why this is the
moving average of choice among many technical traders. A 15-period EMA raises and falls faster than a 15-period
SMA. This slight difference doesn’t seem like much, but it is an important factor to be aware of since it can affect
Major Uses of Moving Averages
Moving averages are used to identify current trends and trend reversals as well as to set up support and
resistance levels. Moving averages can be used to quickly identify whether a security is moving in an uptrend or a
downtrend depending on the direction of the moving average. When a moving average is heading upward and the
price is above it, the security is in an uptrend. Conversely, a downward sloping moving average with the price below
can be used to signal a downtrend.
Another method of determining momentum is to look at the order of a pair of
moving averages. When a short-term average is above a longer-term average,
the trend is up. On the other hand, a long-term average above a shorter-term
average signals a downward movement in the trend.
Moving average trend reversals are formed in two main ways: when the price moves through a moving
average and when it moves through moving average crossovers. The first common signal is when the price moves
through an important moving average. For example, when the price of a security that was in an uptrend falls below
a 50-period moving average, it is a sign that the uptrend may be reversing.
The other signal of a trend reversal is when one moving average crosses
through another. For example, if the 15-day moving average crosses above
the 50-day moving average, it is a positive sign that the price will start to
If the periods used in the calculation are relatively short, for example 15 and
35, this could signal a short-term trend reversal. On the other hand, when two
averages with relatively long time frames cross over (50 and 200, for
example), this is used to suggest a long-term shift in trend.
Another major way moving averages are used is to identify support and
resistance levels. It is not uncommon to see a stock that has been falling stop
its decline and reverse direction once it hits the support of a major moving
average. A move through a major moving average is often used as a signal by
technical traders that the trend is reversing. For example, if the price breaks
through the 200-day moving average in a downward direction, it is a signal
that the uptrend is reversing.
Moving averages are a powerful tool for analyzing the trend in a security.
They provide useful support and resistance points and are very easy to use.
The most common time frames that are used when creating moving averages
are the 200-day, 100-day, 50-day, 20-day and 10-day. The 200-day average is
thought to be a good measure of a trading year, a 100-day average of a half a
year, a 50-day average of a quarter of a year, a 20-day average of a month
And 10 – day average of two weeks.
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. So far we have been focused on price movement,
through charts and averages. In the next section, we'll look at some other techniques used to confirm price
movement and patterns.
The Accumulation/Distribution is a momentum indicator that
associates changes in price and volume. The indicator is based on the
premise that the more volume that accompanies a price move, the more
significant the price move.
The Accumulation/Distribution is really a variation of the more
popular On Balance Volume indicator. Both of these indicators attempt to
confirm changes in prices by comparing the volume associated with prices.
When the Accumulation/Distribution moves up, it shows that the security is
being accumulated, as most of the volume is associated with upward price
movement. When the indicator moves down, it shows that the security is
being distributed, as most of the volume is associated with downward price
movement. Divergences between the Accumulation/Distribution and the
security's price imply a change is imminent. When a divergence does occur,
prices usually change to confirm the Accumulation/Distribution. For
example, if the indicator is moving up and the security's price is going down,
prices will probably reverse.
Bollinger Bands are similar to moving average envelopes. The
difference between Bollinger Bands and envelopes is envelopes are plotted at
a fixed percentage above and below a moving average, whereas Bollinger
Bands are plotted at standard deviation levels above and below a moving
average. Since standard deviation is a measure of volatility, the bands are
self-adjusting: widening during volatile markets and contracting during
Bollinger Bands were created by John Bollinger.
Bollinger Bands are usually displayed on top of security prices, but
they can be displayed on an indicator. These comments refer to bands
displayed on prices.
As with moving average envelopes, the basic interpretation of Bollinger
Bands is that prices tend to stay within the upper- and lower-band. The
distinctive characteristic of Bollinger Bands is that the spacing between the
bands varies based on the volatility of the prices. During periods of extreme
price changes (i.e., high volatility), the bands widen to become more
forgiving. During periods of stagnant pricing (i.e., low volatility), the bands
narrow to contain prices.
following are characteristics of Bollinger Bands.
• Sharp price changes tend to occur after the bands tighten, as volatility
• When prices move outside the bands, a continuation of the current trend is
• Bottoms and tops made outside the bands followed by bottoms and tops
made inside the bands call for reversals in the trend.
• A move that originates at one band tends to go all the way to the other band.
This observation is useful when projecting price targets.
COMMODITY CHANNEL INDEX:-
The Commodity Channel Index ("CCI") measures the variation of a
security's price from its statistical mean. High values show that prices are
unusually high compared to average prices whereas low values indicate that
prices are unusually low. Contrary to its name, the CCI can be used
effectively on any type of security, not just commodities.
There are two basic methods of interpreting the CCI: looking for
divergences and as an overbought/oversold indicator.
• A divergence occurs when the security's prices are making new highs while
the CCI is failing to surpass its previous highs. This classic divergence is
usually followed by a correction in the security's price.
• The CCI typically oscillates between 100. To use the CCI as an
overbought/oversold indicator, readings above +100 imply an overbought
condition (and a pending price correction) while readings below -100 imply
an oversold condition (and a pending rally).
ENVELOPES (TRADING BANDS)
An envelope is comprised of two moving averages. One moving
average is shifted upward and the second moving average is shifted
Envelopes define the upper and lower boundaries of a security's normal
trading range. A sell signal is generated when the security reaches the upper
band whereas a buy signal is generated at the lower band. The optimum
percentage shift depends on the volatility of the security--the more volatile,
the larger the percentage. The logic behind envelopes is that overzealous
buyers and sellers push the price to the extremes (i.e., the upper and lower
bands), at which point the prices often stabilize by moving to more realistic
levels. This is similar to the interpretation of Bollinger Bands.
The MACD ("Moving Average Convergence/Divergence") is a trend
following momentum indicator that shows the relationship between two
moving averages of prices. The MACD was developed by Gerald Appel,
publisher of Systems and Forecasts. The MACD is the difference between a
26-day and 12-day exponential moving average. A 9-day exponential moving
average, called the "signal" (or "trigger") line is plotted on top of the MACD
to show buy/sell opportunities. (Appel specifies exponential moving averages
as percentages. Thus, he refers to these three moving averages as 7.5%, 15%,
and 20% respectively.)
The MACD proves most effective in wide-swinging trading markets. There
are three popular ways to use the MACD: crossovers, overbought/oversold
conditions, and divergences.
The basic MACD trading rule is to sell when the MACD falls below its
signal line. Similarly, a buy signal occurs when the MACD rises above its
signal line. It is also popular to buy/sell when the MACD goes above/below
The MACD is also useful as an overbought/oversold indicator. When the
shorter moving average pulls away dramatically from the longer moving
average (i.e., the MACD rises), it is likely that the security price is
overextending and will soon return to more realistic levels. MACD
overbought and oversold conditions exist vary from security to security.
A indication that an end to the current trend may be near occurs when the
MACD diverges from the security. A bearish divergence occurs when the
MACD is making new lows while prices fail to reach new lows. A bullish
divergence occurs when the MACD is making new highs while prices fail to
reach new highs. Both of these divergences are most significant when they
occur at relatively overbought/oversold levels.
The Momentum indicator measures the amount that a security's price has
changed over a given time span.
The interpretation of the Momentum indicator is identical to the
interpretation of the Price ROC. Both indicators display the rate-of-change of
a security's price. However, the Price ROC indicator displays the rate-of-
change as a percentage whereas the Momentum indicator displays the rate-
of-change as a ratio.
ON BALANCE VOLUME
On Balance Volume ("OBV") is a momentum indicator that relates volume to
price change. On Balance Volume was developed by Joe Granville
On Balance Volume is a running total of volume. It shows if volume is
flowing into or out of a security. When the security closes higher than the
previous close, all of the day's volume is considered up-volume. When the
security closes lower than the previous close, all of the day's volume is
The Price Oscillator displays the difference between two moving averages of
a securitys price. The difference between the moving averages can be
expressed in either points or percentages. The Price Oscillator is almost
identical to the MACD, except that the Price Oscillator can use any two user-
specified moving averages. (The MACD always uses 12- and 26-day moving
averages, and always expresses the difference in points.)
Moving average analysis typically generates buy signals when a short-term
moving average (or the securitys price) rises above a longer-term moving
average. Conversely, sell signals are generated when a shorter-term moving
average (or the security’s price) falls below a longer-term moving average.
The Price Oscillator illustrates the cyclical and often profitable signals
generated by these one- or two-moving-average systems.
Volume is simply the number of shares (or contracts) traded during a
specified time frame (e.g., hour, day, week, month, etc). The analysis of
volume is a basic yet very important element of technical analysis. Volume
provides clues as to the intensity of a given price move.
Low volume levels are characteristic of the indecisive expectations
that typically occur during consolidation periods (i.e., periods where prices
move sideways in a trading range). Low volume also often occurs during the
indecisive period during market bottoms. High volume levels are
characteristic of market tops when there is a strong consensus that
prices will move higher. High volume levels are also very common at the
beginning of new trends (i.e., when prices break out of a trading range). Just
before market bottoms, volume will often increase due to panic-driven
Volume can help determine the health of an existing trend. A healthy up-
trend should have higher volume on the upward legs of the trend, and lower
volume on the downward (corrective) legs. A healthy downtrend usually has
higher volume on the downward legs of the trend and lower volume on the
upward (corrective) legs.
The Volume Oscillator displays the difference between two moving averages
of a security's volume. The difference between the moving averages can be
expressed in either points or percentages.
We can use the difference between two moving averages of volume to
determine if the overall volume trend is increasing or decreasing. When the
Volume Oscillator rises above zero, it signifies that the shorter-term volume
moving average has risen above the longerterm volume moving average, and
thus, that the short-term volume trend is higher (i.e., more volume) than the
longer-term volume trend.
There are many ways to interpret changes in volume trends. One common
belief is that rising prices coupled with increased volume, and falling prices
coupled with decreased volume, is bullish. Conversely, if volume increases
when prices fall, and volume decreases when prices rise, the market is
showing signs of underlying weakness. The theory behind this is straight
forward. Rising prices coupled with increased volume signifies increased
upside participation (more buyers) that should lead to a continued move.
Conversely, falling prices coupled with increased volume (more sellers)
signifies decreased upside participation.
TECHNICAL ANALYSIS OF A STOCK:-
POWERGRID, a Navratna Public Sector Enterprise, is one of the
largest transmission utilities in the world.POWERGRID wheels about 45%
of the total power generated in the country on its transmission
network.POWERGRID has a pan India presence with around 71,500 Circuit
Kms of Transmission network and 120 nos. of EHVAC & HVDC sub-
stations with a total transformation capacity of 79,500 MVA.POWERGRID
has also diversified into Telecom business and established a telecom network
of more than 20,000 Kms across the country.POWERGRID has consistently
maintained the transmission system availability over 99% which is at par
with the International Utilities.
POWERGRID, the Central Transmission Utility (CTU) of the country, is
engaged in power transmission business with the mandate for planning, co-
ordination, supervision and control over complete inter-State transmission
system. POWERGRID, as on July 2009, owns and operates about 71,600 ckt
kms of transmission lines at 800/765 kV, 400 kV, 220 kV & 132 kV EHVAC
& +500 kV HVDC levels and 122 sub-stations with transformation capacity
of about 81,200 MVA. This gigantic transmission network, spread over
length and breadth of the country, is consistently maintained at an availability
of over 99% through deployment of state-of-the-art Operation &
Maintenance techniques which are at par with global standards.
Share Holding Patterns
Promoter (Ind) 86.36%
Promoter (For) 0.00%
Price’s of Power Grid
Month Open Close
Oct’2008 92.05 89.90
This chart is showing the pattern of accumulation/distribution with the price
pattern of Power Grid and we can easily see that the indicator is following
the same pattern as the price of power grid.
But for now looking at this indicator is showing downward trend in the
prices. Because as an when price move to 10m in indicator the price tend to
fall and there is one another reason that is prices are going down and
indicator is going up that also shows the negative trend in the prices.
The chart shows that prices are moving within bollinger band and
trading days where this script is very volatile and at some point of time its
less volatile. During the Oct – Nov 2008 and May – June 2009 the Script
seems to be more trading months.But looking at the current situation the
script shows a selling signal but as the prices reaches below the bollinger
band the prices would again tend to move upside but it all depends on the
santiments and situation which would be prevailing in the market at that
point of time.
But for now one shold sell the particular script to gain a profit of about 5 –
10% in near future.
Commodity Channel Index:
The chart shows that the CCI is moving in line with the prices and the as
prices goes up the CCI also goes up and vice versa.
By the chart, if we are looking for the current trend its moving downward for
short run but it still bullish for medium term.
Currently stock is showing that prices will go down but as it will touch its
lower envelope band its will move upward
Currently looking at the chart the MACD has crossed the EMA 9 from the
upside and this is a kind of negative sign and this negativity is going to be
there until the MACD move above the EMA cutting it from below
Earlier chart has shown some indication about sell and buy and they come
true as it can be seen from the chart itself. Now the chart is showing selling
indication for intraday basis and for short term its good when indicator goes
to the lower level as it has made earlier
Looking at the chart one can easily interpret that moving average is roaming
around the price but still giving some indication about price movement for
near future. Sometime it shows indication of sale and buy at given point of
Looking forfuture price we cannot easily interpret themovement at thi spoint
of time but still some indication of sale is shown in the graph as the price of
share take support at the 15 days moving average and futher going down. It
shows a downturn for short term period and if price cross moving from
below and goes above the moving average that would be the best time to buy
On Balance Volume:-
Currently the indicator is making low high than the previous high and its
indicates the downturn in intraday basis. But as it breaks the cuurent trend
prices tend to move upside with a bang.
Currently the share prices according to the indicator is trading high and it
gave a signal of selling share prices fro short term and go long for medium
Current trend of volume shows that price tend to move upward but the rally
will not exceed 2-3 days. After that we need to see the chart again because
the indicator is not so trustworthy as others
The chart shows that price will tend to move downside in short term but on
intraday basis it will move upside.