TECHNICAL ANALYSIS

It is a process of identifying trend reversals at an earlier stage to formulate the buying and selling strategy. With the help of several indicators they analyze the Relationship between price volume and supply demand for the overall market and the individual stock. Assumptions 1) The market value of the scrip is determined by the interaction of supply and demand. 2) The market discounts everything the price of the security quoted represented the hopes fears and inside information received by the market players. Insider information regarding the issue of bonus shares and right issues may support the prices.

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3) The market always moves in trends, stock price move in trends, the price may create definite pattern too, trends may either increasing and decreasing. The trends continuous for sometimes and then it reserve. 4) Any layman knows the fact that history repeat itself, in the rising market investors psychology have up beats and they purchase the shares in greater volumes driving the price higher. 5) The market technicians assume that past prices predict the future.

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History of Technical Analysis The technical analysis is based on the doctrine given by Charles H. Dow in 1984 in the wall street Journal, he wrote a series of articles in the wall street Journal. DOW THEORY Dow developed his history to explain the movement of the indices of Dow Jones averages. He developed the theory on the basis of certain hypothesis. a) The first hypothesis is that no single individual or buyer can influence the major trend of the market. An individual investor can effect the daily price movement by buying and selling large stocks of scrip.

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b) His second hypothesis is that the market discount everything. Even natural calamities such as earthquake, plague, blast etc. c) His third hypothesis is that the theory is not tool to beat the market but provides a way to understand it better. According to Dow Theory the trends is divided into primary and intermediate and short term trends. Trends; Trends is the direction of movement the share prices can either increase or fall or remains flat. The three direction of the share price movements are called rising falling and flats trends

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Trends Reversals; The rise or fall in share price can not go on forever. The share price movements may reveres its direction. Before the change of direction, certain pattern in price movement emerges. PRIMARY TREND The bull market shows three clear cut peaks, each peak is higher than the pervious peak. The bottom are also higher than the previous bottom.

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Bull Market T3 PRICE T2 T1 B1 B2

DAYS

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Confidence a period encourage more and more investors to buy scripts their expectation about the future being high. Increased profits of corporate would result in further price rise. Third phase due to inflation and speculation. The first phase of fall starts with the hopes, the chance of prices moving back to the previous high level seemed to be low. Second phase companies are reporting, lower profit and dividend. The third phase distress sales of shares.

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T1 B1 T2 Price B2 B3 Bear Market Days

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Price

Corrections

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Secondary trends or the intermediate trend moves against the main trend and leads to correction. In the bull market the Secondary trend would result in the fall of labor 33.66% of the earlier rise. In the bear market the secondary trend carries the price upward and corrects the main trends. MINOR TRENDS They are simply the daily price fluctuations minor trend tries to correct the secondary trends movement. Investor is better concentrate primary or secondary trends than on the minor trends

INDICATORS
a)

Price Indicators We that change in a security price is probably the market the most important components in the total rate of return resulting from holding a security. Advance & Decline The basic idea behind the measurement of advance and decline is to determine what the main body of stock is really doing comparison of advance and declines is a means of measuring the dispersion. New high & New Lows A Supplementary measure is that a rising market will generally be accompanied by an expanding number of stocks attaining new highs, the reverse holds true for a decline market.

II

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III Most Active Market Most major weekly market publish in news few most active stocks for the weeks, this segment of the market is at first glance relatively useless because the makeup of the list changes from week to week. Volume Indicators Dow gave special emphasis on volume, volume expands along with the bull market and narrows down in the bear market. Technical analyst used volume as an excellent method by confirming the trend. The market is said to be bullied when small volume of trade and large volume of trade follow the fall in price and the rise in price.

b)

INDICATORS
I Short Sales Short selling is a technical indicator know as short interest. The bears are the short sellers who sell now in the hope of purchasing at a lower price in the future to make profits. Short selling of a particular month is selected and compared with the average daily volume of the preceding months. This ratio take to use up total short sales. II The small investors more often than not buys than 100 shares of given stocks such buyers and sellers are called odd lotters. Odd lotters try to do the right thing most of the time, that is they tend to buy stocks as the market retreats and sell stocks as the market advances. If we relate odd-lot purchases to odd lots sales (purchase % sales), we get an odd lot index.

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C)

II

Other Indicators Mutual Fund Mutual fund seep cash to take advantages of favorable market opportunities or provide for redemption of shares by holders. Credit Balance Investor have two choices he can either have the credit balance forwarded to him or leave the credit balance in the account. Thus the only reason for maintaining the credit balance in the account would be for purposes of reinvestment of these funds in the very near future.

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1)

Moving Average The market indices do not rise or fall in straight line, the upward and downward movements are interrupted by counters moves. e.g. Days Price Averages 4 225 6 261 7 269 266.2 8 273 270.8 11 273 272.8 12 278 273.2 13 271 274.0 14 271 273.8

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Moving average are used to study the movement of the - market as well as the individual stock price. - Index and stock price moving averages - Stock price and stocks prices moving averages. - Comparison of the two moving averages.
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sale Buy single price

Days

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II Oscillators Oscillators indicators the market momentum or scrip momentum. Oscillators shows the share price movements across a reference points one extreme to another - Overbought and oversold conditions of the scrip or the market - Signaling the possible trends reversal - Rise and decline in the momentum. III Relative Strength an Index (RSI) RSI was developed by wells wider. It is an oscillator used to identify the inherent technical strength and weakness of a particular scrip or market.

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RSI = 100 ( 100 / 1+ Rs ) Rs. = Averages gain per day Averages loss per day sale

Buy

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IV Rate Of Changes ROC measures the rate of change between the current price and the prices number of days in the past. ROC helps to find out the overbought or oversold positions in a scrip two ways calculated ROC 1 Formula ROC = Today price Prices n day back 2 Graph overbought

oversold

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V Charts Charts are the valuable and easier tools in the technical analysis - Spots the current trends for buying & selling -Indicators the probable future action of the market by projection - Shows the past historic movement - Indicators the important areas of support and resistances. VI Points & Figures Charts

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VII Head and Shoulders

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VIII Symmetrical Triangle

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VX v formation chart

Price

Days

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X Flags

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Numerous patterns have been described by technicians, such as

Triangles  Pennants  Flags  Channels  Rectangles  Double tops  Triple tops  Wedge formations  Diamonds