“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd
INDEX
Sl. No
CONTENTS
PAGE NO.
1
EXECUTIVE SUMMARY
1-5
2
INDUSTRY OVERVIEW
6-17
COMPANY PROFILE 3
4
5
18-27
PRODUCT AND SERVICES ABOUT THE TECHNICAL ANALYSIS ANALYSIS: STOCK PRICE ANALYSIS AND GRAPHICAL
28-83
84-102
REPRESENTATION 6
FINDINGS
103-104
7
RECOMMENDATIONS
105-107
8
CONCLUSION
108-109
9
BIBLIOGRAPHY
110-111
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd
Executive summary Introduction India’s economy is on the fulcrum of an ever increasing growth curve. With Positive indicators such as stable 8 percent annual growth, rising foreign exchange reserves of close to US$ 140 billion, a booming capital market with the popular “sensex” index topping the majestic 21,000 mark, flowing foreign direct investment (FDI) close to US$ 8 billion, and a more than 20 percent surge in exports, it is easy to grasp why India is a leading destination for foreign investment. The industrial sector too has been on a high. The rate of growth of industrial sector as measured in terms of index of industrial production (IIP) during AprilDecember 2007-08 was 11 percent. Impressive performance of the manufacturing sector, which grew at 8.9 percent during this period, largely contributed to these figures. The stock exchange comes in the secondary market. Stock exchange performs activities such as trading in share, gilt-edge securities, bonds, mutual fund & commodities. Stock broking industry is growing at an enormous rate, as more and more people are attracted towards stock exchanges with the hope of making profits. The company Ventura securities pvt ltd., the Ventura is a premier investment consultancy firm that has been launched with the aim of making investing simpler, more understandable and profitable for the investors. Ventura securities bring a wide range of equity and derivatives for the convenience and benefit of it customers. The topic technical analysis deals with predicting the share prices of the stocks based on some technical tools like Moving Average, popular charting patterns etc
The summer in plant training was carried out at “Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd.
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd Geerak Marketing Equities & Derivatives is one of the leading stock Broking and Financial consultancy firms in Bangalore started by Mr. Nanalal Karva in the year 2006. The Organization mainly deals with following products: •
NSE/BSE on line Trading
•
Derivatives
•
Commodities
•
Mutual Funds
•
Depository Services
•
Mailing Services
Title: “Study on Technical Analysis of the Securities”
Rationale: This study is of utmost importance from the investor’s point of view because of its utility to enter into the stock market and estimating the future trends of the stock prices and to make a decent profit out of it. To know the volatility of the market this is heading towards 17,000 mark now and to predict the future movements of shares and index for investing.
Main and Sub objectives: MAIN OBJECTIVE:: Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd
It aims to
forecast prices of equity shares of
selected companies using Technical Analysis. SUB OBJECTIVES:: To know various techniques to assess the equity shares To know the best way to predict the future trend of a stock And to help the investors to invest in a good stocks in the markets, which are technically strong And also to find right buying and selling point
for the scrip.
Methodology: Secondary data: The secondary data were collected from the companies’ websites and the annual reports.
Findings: 1)
Support and resistance level are the levels where buying and selling pressure from investors does not allow the prices of securities to come down.
2)
The prices of securities are very sensitive, they react quickly to any event happening within its internal and external environment.
Recommendations/Suggestions: 1.
Remember that stocks are never too high for you to begin buying
or too low to begin selling. But after the initial transaction, don't make a second unless the first shows you a profit. Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd
2.
If a stock doesn't act right, do not touch it; because, being unable to
tell precisely what is wrong, you cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit.
3.
Always sell what shows you a loss and keep what shows you a
4.
The principles of successful stock speculation are based on the
profit.
supposition that people will continue in the future to make the mistakes that they have past. 5.
Do not seek to lure the profit back. Quit while the quitting is
good--and cheap.
6.
Never buy a stock because it has had a big decline from its
previous high.
7.
There is only one side to the stock market; and it is not the bull
side or the bear side but the right side. 8.
Never act on tips always.
9.
A investor must believe in himself and his judgment if he expects
to make a living at this game.
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd
INDUSTRIAL PROFILE
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd The working of stock exchanges in India started in 1875. BSE is the oldest stock market in India. The history of Indian stock trading starts with 318 persons taking membership in Native Share and Stock Brokers Association, which we now know by the name Bombay Stock Exchange or BSE in short. In 1965, BSE got permanent recognition from the Government of India. National Stock Exchange comes second to BSE in terms of popularity. BSE and NSE represent themselves as synonyms of Indian stock market. The history of Indian stock market is almost the same as the history of BSE. The 30 stock sensitive index or Sensex was first compiled in 1986. The Sensex is compiled based on the performance of the stocks of 30 financially sound benchmark companies. In 1990 the BSE crossed the 1000 mark for the first time. It crossed 2000, 3000 and 4000 figures in 1992. The reason for such huge surge in the stock market was the liberal financial policies announced by the then financial minister Dr. Man Mohan Singh. The up-beat mood of the market was suddenly lost with Harshad Mehta scam. Sensex crossed the 5000 mark in 1999 and the 6000 mark in 2000. The 7000 mark was crossed in June the 8000 mark on September 8 in 2005 and the 20000 mark on Nov 2007. Many foreign institutional investors (FII) are investing in Indian stock markets on a very large scale. The liberal economic policies pursued by successive Governments attracted foreign institutional investors to a large scale. Experts now believe the sensex can soar past 24000 mark before 2010. India, after United States hosts the largest number of listed companies. Global investors now ardently seek India as their preferred location for investment. Once viewed with skepticism, stock market now appeals to middle class Indians also. Many Indians working in foreign countries now divert their savings to stocks. This recent phenomenon is the result of opening up of online trading and diminished interest rates from banks. The stockbrokers based in India are opening offices in different countries mainly to cater the needs of Non Resident Indians. The time factor also works for the NRIs. They can buy or sell stock online after returning from their work places. Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd The recent incidents that led to growing interest among Indian middle class are the initial public offers announced by Tata Consultancy Services, Maruti Udyog Limited, ONGC and big names like that. Good monsoons always raise the market sentiments. A good monsoon means improved agricultural produce and more spending capacity among rural folk. The bullish run of the stock market can be associated with a steady growth of around 8% in GDP, the growth of Indian companies to MNCs, large potential of growth in the fields of telecommunication, mass media, education, tourism and IT sectors backed by economic reforms ensure that Indian stock market continues its bull run.
INDIAN ECONOMY: an overview
Indian economy India’s economy is on the fulcrum of an ever-increasing growth curve. A booming capita market with the popular “Sensex” index topping the majestic 20,500 mark, flowing foreign direct investment (FDI) close to US$ 8 billion, and a more than 20 per cent surge in exports, it is easy to grasp why India is a leading destination for foreign direct investment India's economy grew last quarter at the slowest pace since 2006, signaling the central bank may soon end three years of inflation-fighting rate increases. Asia's third-largest economy expanded 8.9 percent in the three months to Sept. 30 from a year earlier after a 9.3 percent increase in the previous quarter, the statistics office said today in New Delhi. Analysts expected an 8.7 percent gain. ``Removing bottlenecks is central for India's growth to continue,'' said Maya Bhandari, an economist at Lombard Street Research Ltd. in London. ``India is growing at its potential, its macro fundamentals are solid and you have a situation where companies will put more money there.'' Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd The Reserve Bank of India expects growth in the year to March to ease to 8.5 percent after it raised interest rates nine times since 2004 to curb consumer-price gains. Inflation was 3.01 percent in the week ending Nov. 10. Manufacturing gained 8.6 percent last quarter from a year earlier, easing from a previous increase of 11.9 percent. Electricity output slowed to 7.3 percent from 8.3 percent, while farming rose 3.6 percent after a 3.8 percent gain in the quarter ended June 30. Cars, Motorbikes Higher interest rates have curbed demand for cars and motorbikes, prompting Tata Motors Ltd. and Hero Honda Motors Ltd. to delay opening new factories and cut output. Demand for paper may wane from next year, said Gautama Thapar, chairman of Ballarpur Industries Ltd., India's biggest maker of writing and printing paper. Still, economic expansion in this financial year almost matches the average 8.6 percent growth from 2003, the quickest pace in the Asian nation's history since independence in 1947. That's boosting profits for companies doing business in India. South Africa's Richards Bay Coal Terminal, the world's biggest coal-export facility, expects a 30-fold surge in sales to India this year. Holcim Ltd., the world's second-largest cement maker, said this month that its third-quarter profit rose 28 percent as plants in India and China ran at full capacity. Credit Crunch ``This trend will continue because of all the work on infrastructure,'' said Jerome Lombardi, a business development manager at Holcim Group Support (S) Pte Ltd. in Singapore. ``When there is a global crisis we would rely on countries like India and China to sustain our growth.''
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd With exports accounting for only 23 percent of India's $906 billion economy, Lehman Brothers Inc. expects the South Asian nation to be immune to a deceleration in world growth sparked by mortgage defaults in the U.S. The International Monetary Fund last month cut its projection for global growth next year to 4.8 percent from an estimate of 5.2 percent in July and warned that even its new prediction may be too optimistic given threats posed by the sell-off in credit markets. India's pace of growth is almost three times the economic expansion in the U.S. and countries that share the euro, and falls only behind China's 11.5 percent gain last quarter among the world's top 15 economies. Foreign Investment: Global producers of cement, steel, aluminum, copper and other products are benefiting from an unprecedented drive by India to modernize and expand roads, ports and other infrastructure. Singh's government aims to attract $500 billion by 2012 in India's infrastructure. The government will next week consider easing foreign investment rules in aircraft maintenance companies, petroleum marketing firms and commodity exchanges, the Economic Times reported. Since assuming office in May 2004, the government has relaxed foreign investments in telecommunications and single- brand retail outlets. Demand in India is also being bolstered by new jobs created by companies such as Cisco Systems and Mahindra & Mahindra Ltd., which are expanding to benefit from local consumer spending. Cisco, the world's largest maker of computer-networking equipment, plans to triple its workforce in India to 10,000 people by 2010, Chief Executive Officer John Chambers said last month. Cisco, International Business Machines Corp. and others are recruiting more in India where pay scales are a fifth of those in western economies.
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd Less Red Tape Mahindra, India's biggest sport-utility vehicle maker, plans to spend about $1 billion in the next four years to double automobile production. The Indian economy has quadrupled in size since 1991, when the Oxfordeducated Singh as the finance minister, introduced free-market measures that cut red tape and allowed foreign companies to set up operations locally. That's helped double per capita income in the last eight years. The Indian economy is really performing very impressively right now. [Macroeconomic and Monetary Developments in 2006-07 -Announced on the 23rd April 2007]
The Highlights of macroeconomic and monetary developments during 2006-07 are:
The Real Economy The Indian economy witnessed robust growth during 2006-07 for the fourth year in succession. According to the advance estimates released by the Central Statistical Organization (CSO), real Gross Domestic Product (GDP) growth is estimated to accelerate from 9.0 per cent in 2005-06 to 9.2 per cent in 2006-07. The acceleration in growth during 2006-07 was driven by the continued momentum in the services and the manufacturing sectors, both of which are expected to record double-digit growth. 'Agriculture and allied activities' growth, however, slowed down from 6.0 per cent in 2005-06 to 2.7 per cent in 2006-07.
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd India is the world’s second largest producer of food next to china, and has the potential of being the biggest in the world. Food processing is the key industrial sector for India, it accounts for a gross output of more than US$ 69.4 billion, out of which valueadded food products comprise US$ 22.2 billion. Size of the semi-processed and ready to eat packaged food industry is over US$ 1 billion, and it is growing at over 20 per cent a year. The total food production in India is likely to double in the next ten years. In Q3FY06, the total net profit of 12 major companies increased 174.83 per cent to US$ 15.8 million from US$ 5.75 million in Q3FY05. According to the Third Advance Estimates, reduction of food grains during 2006-07 is likely to be 211.8 million tones, an increase of 1.5 per cent over the previous year.
INDUSTRIAL GROWTH: Industrial production continued its growth momentum during April-February 2006-07, with growth accelerating to 11.1 per cent from 8.1 per cent a year ago. The manufacturing sector grew by 12.1 per cent during April-February 2006-07. The services sector, with a growth rate of 10.7 per cent during April-December 2006 as compared with 9.8 per cent a year ago, continued to be the key driver of economic activity. Profits after tax of RBI sample non-Government non-financial companies increased by 48.7 per cent during April-December 2006 on top of 36.8 per cent growth recorded in the corresponding period of 2005. Ratio of profits after tax to sales improved to 11.0 per cent during the quarter ended December 2006 from 8.6 per cent a year ago Fiscal Situation:: According to the revised estimates for 2006-07, the key deficit indicators of the Central Government, viz., revenue deficit, gross fiscal deficit and primary deficit, relative to Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd GDP, at 2.0 per cent, 3.7 per cent and 0.1 per cent, respectively, were placed lower than their budgeted levels.
According to the Reserve Bank records, actual gross market borrowings through dated securities by the Central Government amounted to Rs.1, 46,000 crore during 2006-07. The weighted average yield of the dated securities issued during 2006-07 increased to 7.89 per cent from 7.34 per cent during the previous year. The weighted average maturity of the dated securities issued during the year fell to 14.72 years from 16.90 years during 2005-06. During 2006-07, revenue deficit and gross fiscal deficit of State Governments were budgeted at 0.1 per cent and 2.7 per cent, respectively, of GDP - a reduction of 0.4 percentage points and 0.5 percentage pints, respectively, over the previous year. During 2006-07, the States raised market loans amounting to Rs.20, 825 crore through auctions,
with
cut-off
rates
in
the
range
7.65-8.66
per
cent.
The liquidity position of the States remained comfortable during 2006-07. This was reflected in the weekly average investment by the States in the 14-day Treasury Bills which increased further during 2006-07 to Rs.43, 075 crore from Rs.35, 278 crore in the previous year. The weekly average utilization of WMA and overdraft by the States at Rs.234 crore in 2006-07 was lower than that of Rs.482 crore in 2005-06. The Union Budget for 2007-08 proposes to continue the fiscal consolidation process, with the key deficit indicators as per cent of GDP budgeted to be lower in 2007-08 than in the previous year. The revenue deficit relative to GDP is budgeted to be reduced in 2007-08 by 0.5 percentage points, which is the minimum stipulated threshold limit under the FRBM Rule, 2004; therefore, a substantial correction in the revenue deficit of 1.5 percentage points would be required in 2008-09, the terminal year for meeting the FRBM Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd target. Monetary and Liquidity Conditions: Broad money growth accelerated to 20.8 per cent (Rs.5, 67,372 crore) (year-on-year) at end-March 2007 from 17.0 per cent (Rs.3, 96,881 crore) a year ago. Non-food credit of scheduled commercial banks (SCBs) expanded by 28.0 per cent (Rs.4, 10,285 crore), y-o-y, as on March 30, 2007 as compared with 31.8 per cent (Rs. 3, 54,193 crore) a year ago. Deposits exhibited sharp growth and enabled financing of sustained high demand for credit. Deposits of SCBs increased by 23.0 per cent (Rs. 4, 85,210 crore) (y-o-y) as on March 30, 2007 as compared with 18.1 per cent (Rs. 3, 23,913 crore) a year ago. Reserve money expanded by 23.7 per cent (Rs.1, 35,892 crore), y-o-y, as on March 31, 2007 as compared with 17.2 per cent (Rs.83, 922 crore) a year ago. Adjusted for the first round effects of the hikes in the CRR, reserve money growth (y-o-y) was 18.9 per cent as on March 31, 2007. The Reserve Bank continued to modulate market liquidity with the help of repo and reverse repos under the liquidity adjustment facility (LAF), issuance of securities under the Market Stabilisation Scheme (MSS) and the cash reserve ratio (CRR). The task of liquidity management was complicated during 2006-07 due to large variations in market liquidity on account of variations in cash balances of the Governments and capital flows. Price Situation: Headline and core inflation remained at elevated levels in many economies during the first half of 2006-07 reflecting high commodity prices and strong demand Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd conditions. Although headline inflation eased somewhat internationally from August 2006 levels in tandem with the softening of international crude oil prices and favorable base effects, it remains above the inflation targets/comfort zones in many economies. Many central banks continued with pre-emptive monetary tightening to mitigate the second round effects, especially in the face of continuing strong demand. Central banks in emerging market economies also raised cash reserve requirements to address concerns regarding excess liquidity arising, particularly from large external flows. In India, prices of primary food articles and manufactured products exerted upward pressures on headline inflation in 2006-07. Wholesale price inflation was generally within the Reserve Bank's indicative projections of 5.0-5.5 per cent up to mid-November 2006 and rose above the upper end of the band thereafter. The year-on-year (y-o-y) inflation was 5.7 per cent as on March 31, 2007 as compared with 4.0 per cent a year ago.
Measures of consumer price inflation remained above the WPI inflation throughout the year,
mainly
reflecting
the
impact
of
higher
food
prices.
The Reserve Bank continued with the policy of gradual withdrawal of monetary accommodation, using various instruments at its disposal flexibly to stabilise inflationary expectations. The Government also took fiscal and supply-side measures to contain inflation. Financial Markets: Indian financial markets remained generally orderly during most part of 2006-07. There were, however, some spells of volatility at different points of time during the year reflecting developments in liquidity conditions on account of large and sudden changes in capital flows and cash balances of the Governments.
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd
The call money rate edged up during the year in tandem with movements in policy rates. The call rate remained mostly within the corridor set by the Reserve Bank's repo and reverse repo rates during April-November 2006. In the subsequent months, there were a few brief episodes (last week of December 2006 and second half of March 2007) of higher volatility when the call rate exceeded the repo rate significantly. In the foreign exchange market, the Indian rupee exhibited two-way movements with a strengthening bias since mid-July 2006.
Yields in the Government securities market hardened during the year and the yield curve flattened. Banks' deposit and lending rates edged up, especially in the second half of the year. The External Economy : According to the Directorate General of Commercial Intelligence and Statistics (DGCI&S) data, merchandise exports recorded a growth of 19.3 per cent during AprilFebruary 2006-07 as compared with 26.3 per cent during the corresponding period of 2005-06. Non-oil imports increased by 25.7 per cent during April-February 2006-07 as compared with 26.4 per cent during the corresponding period of 2005-06. Growth in oil imports remained
high,
reflecting
partly
the
increase
in
volumes.
Net invisibles surplus increased to US $ 40.5 billion during the first three quarters of
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd 2006-07 (from US $ 28.1 billion a year ago), benefiting from continued growth in exports of services and remittances.
Net invisibles surplus financed a large part of the deficit on the merchandise trade account. Current account deficit at US $ 11.8 billion during April-December 2006 was marginally lower than that in April-December 2005 (US $ 11.9 billion). Capital flows were substantially higher, led by foreign direct investment (FDI) flows. Outward FDI flows associated with acquisitions by Indian corporate abroad also increased. Capital flows (net) increased from US $ 13.8 billion during April-December 2005
to
US
$
28.0
billion
during
April-December
2006.
Foreign exchange reserves increased by US $ 47.6 billion during 2006-07 to US $ 199.2 billion. As on April 13, 2007, India’s foreign exchange reserves were US $203.1 billion.
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd
INTRODUCTION TO GEERAK MARKETING EQUITIES & DERIVATIVES Geerak Marketing Equities & Derivatives is one of the leading stock broking & investment consultancy firms in Hubli started by Mr. Nanalal Karva in the year 1985. Company Profile Geerak Marketing Equities & Derivative believes in giving services more and more satisfactorily and improving the quality of what they deliver along with wealth creation. It is the first stock and share broking firm to introduce the equity culture in the entire Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd north Karnataka. A big smile with great satisfaction on the faces of clients inspires us to work even harder, not only to maintain the same but also to deliver the best services forever. Since its inception in the year 1985, the firm has grown to reach immense heights. It has withstood all odds in the market and has emerged as a true leader in the bargain. Geerak Marketing is widely recognized as a trustworthy organization and has been successful in satisfying its clients’ interests. In order to provide clients the best out of the best, the Geerak Marketing is associated with “Ventura Securities Ltd”- which is one of the top- stock broking houses in India for equity-derivatives-commodities markets and depository services. The organizations mainly consist of 4 departments like: •
NSE/BSE on line trading
•
Mutual Fund
•
Derivative & Commodity
•
Back office work
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd Strength of Geerak Marketing: •
Affiliated to Ventura Securities Ltd.
•
Quality Service
•
Online trading
•
SMS Trading Calls
•
Pointer
Investment related other diversified services provided by Geerak: •
New issue forms, applications for bonds, debentures and fixed deposits.
•
Investment in mutual fund of UTI, Alliance, Kothari, Zurich, Investment in Mutual fund of UTI, Alliance, Kothari, Zurich, Kotak Mahindra, LIC, GIC, Cholamandala etc.
•
Investment in tax free bonds.
•
Investment of long term gains under section 54 EC in the prescribed Infrastructure bonds (as of NHAI)
Other Services provided by Geerak: •
Information regarding what shares to buy/sell, when to buy/sell and what are the market conditions.
•
Technical Analysis and arriving the trends in the market of index and individual scrip.
•
Arranging investors’ meeting to provide information on the day-to-day changes in the stock market and investment related activities.
•
Arrangement of pre and post Budget meetings for the investors.
•
Transfer of shares and transmission of Shares.
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd
GEERAK BRANCHES: Following are the branches of Geerak Marketing Ltd. Station road Hubli: 49, Shri laxmi balakrishna square, station road, Hubli Belgaum: 9/10, 1st Floor, Biligi Plaza College Road, Belgaum Dharwad: #3, 1st Floor, Geeta complex, P B Road, Dharwad Gadag: #6, Siddhhalingeshwar Complex, Station Road, Gada Gajendragad: 1st Floor, Natraj Hotel Building, Kalkaleshwar Circle, Gajendragad Haveri: Banashankari Complex Vidyanagar, P B Road, Haveri Ranebennur: C/o Siddheshwar Enterprise, P B Road, Near Forest Office, Ranebennur Panvel (Mumbai): O/o Shri Balaji Investment #8, Shree Shayya Pride, Plot No-155, MCCH Society, Panvel, Dist. Raigad
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd
COMPANY PROFILE::::::::: ABOUT VENTURA:: PROMOTERS
Sajid Malik, Director, is a member of the Institute of Chartered Accountants of India and a graduate from Bombay University and has nearly fifteen years of varied experience in corporate advisory structured finance and private equity transaction. He has an international exposure to developed markets in Europe, US and the Far East and has been personally involved in international equity offerings and cross border acquisitions. He is the CEO of Genesys International, a company focused on outsourcing of GIS and engineering design services. He is a non-executive director of Ventura Securities. Hemant Majethia, Director is member of the Institute of Chartered Accountant of India and a graduate from Bombay University and has nearly fifteen years of experience in the capital markets intermediation, equity research and has a wide cross section of market relationships. Mr. Majethia is the CEO of Ventura Securities. It was his vision to create an all India network of brokers’ relationship and build the distribution strength of Ventura. TRACK RECORD In a short time span we have achieved substantial success in its core business activity. We owe our success to our unique business building strategy plan, components of which are:
A differentiated positioning
Selective geographic spread
Flexible and lean operating structure
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd
High quality people
VENTURA HISTORY FOUNDATION OF VENTURA
Founded in 1994 by Chartered Accountants Sajid Malik and Hemant Majethia. They are the first generation entrepreneurs and are the principal promoters of Ventura. A dedicated and efficient team of senior managers assists Mr. Majethia the CEO of the company. Ventura is a full-service domestic brokerage house providing value-based advisory services to Institutions (Foreign and Domestic), High Net Worth and Retail Investors with its core area of operations being stock-broking. We have considerable strength and domain knowledge in the booming derivatives market. Ventura has achieved a reputation for innovative and unbiased research along with excellent technical analysis and execution capabilities. Not only has Ventura provided value-added services to the gamut of India-based funds, it has also developed the advice-driven business of high net worth and corporate clients.
OUR PHILOSOPHY To propel corporate growth we have clear focus to service our clients with undivided attention hence, we do not carry on any proprietary trading or investment.
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd Why
Ventura?
EFFICACIOUS Our
Defined system
services
are
offered
under
total
confidentiality and integrity with the sole purpose of maximizing returns for our clients • Equity Broking - Corporate Member of The Stock Exchange, Mumbai (BSE) and National Stock Exchange of India Ltd. (NSE). Professionally managed Brokerage house • Pan India reach - 380 terminals spread across 75 different locations, in semi urban, urban and metropolitan areas. • More than 100,000 retail clients serviced from the above locations • We have heavily invested in technology (customized and ready to use software) involving front and back end operations offering seamless process and flawless execution and raising our service levels. We operate on an alert and well-in risk management and settlement mechanism EXPERTISE Current news and views, analysis, trends during market hours, Daily newsletter and its implications on events affecting the economy and stock markets, Long-term investment avenues, trading strategy on Index and specific companies and Risk averse investment through derivative product mix. Live market commentary through - “Pointer”- customized on line chat room mainly to cater to upcountry outlets, a pioneering effort and a runaway successful product.
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd Derivatives - Trading strategies in Future and Options; straddle calls to minimize risks and maximize returns. On-line trading and Depository services, to cater our retail clients, are on the anvil and should commence shortly. Research - An integrated system of research approach is to constantly look out for value in the market place based on intrinsic worth of the Company / Industry with necessary skills to analyze markets indices and stocks from a technical perspective to feed our army of retails clients. Networking: Regular touch with Institutional Investors (Foreign and Domestic) to gauge, understand and interpret markets sentiments. This we see as a value addition for our outstation clients who are very far away from the fulcrum of action.
PRODUCT AND SERVICES Ventura is one of the leading Commodity and Financial Futures Brokers with a strong and established market reputation spanning over 12 years. We aim to add value and provide our clients with an unrivalled and specialized service which reflects the expertise and efficiency of our dedicated support teams. Expertise and innovation: Knowledge is invaluable, but success requires expertise and innovation. We believe our people have a wealth of experience and knowledge of the markets that provides them with the ability to interpret information quickly and accurately. Expertise and innovation: We put our clients' needs first and extend a highly personalized service through dedicated dealers. Our combination of service, technology, flexibility and experience makes our back-office second-to-none. Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd Information and research: No broking house is complete without the ability to provide detailed, relevant and timely information and research. Our research department produces reports covering all of the major exchanges and products. OUR OFFERINGS:
Market Outlooks and Strategy Analysis Market research at Ventura is structured to meet a wide variety of customer needs.
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd Services in this area range from the intra-day analysis of the most recent fundamental and technical developments affecting pricing to longer-term strategic research of supply, demand, and inventory trends. Along with its price forecasting capability, the Team undertakes analytical research on hedging and trading strategies. The Team also publishes monographs on topics of broad interest to its customers, such as the impact of changing accounting standards, developments in risk management, and current hedge activities and strategic thought in the various sectors of the market.
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ABOUT THE TOPIC:::::::::: Technical Analysis: Introduction: Babasabpatilfreepptmba.com
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The methods used to analyze securities and make investment decisions fall into two very broad categories: fundamental analysis and technical analysis. Fundamental analysis involves analyzing the characteristics of a company in order to estimate its value. Technical analysis takes a completely different approach; it doesn't care one bit about the "value" of a company or a commodity. Those who sue technical analysis look for peaks, bottoms, trends, patterns and other factors affecting a stock’s price movement and then make buy/sell decisions based on those factors. It is a technique many people attempt but few are truly successful at it. Technicians (sometimes called chartists) are only interested in the price movements in the market. Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity,, past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value; instead they look at stock charts for patterns and indicators that will determine a stock’s future performance. Despite all the fancy and exotic tools it employs, 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 we understand the benefits and limitations of technical analysis, it can give us a new set of tools or skills that will enable us to be a better trader or investor.
TITLE OF THE PROJECT::
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd
“Study on Technical Analysis of the Securities”
OBJECTIVE OF THE STUDY:::
MAIN OBJECTIVE:: It aims to forecast prices of securities in financial markets using charts or
quantitative techniques.
SUB OBJECTIVES:::
To know various techniques to assess the equity shares To know the best way to predict the future trend of a stock And to help the investors to select and to invest in a good stocks in the markets, which are technically strong
Sample Size:
2 Companies in Power
Power sector
Sector
Sample Area:
Duration of my Project:
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd
From Dec 10
th
to Jan 10th (Full
one month) (In every week Two days Friday and Saturday)
From Jan 10th to April 10th
DATA COLLECTING METHODOLOGY Methodology explains the methods used for collected information to carry out the project. SOURCES OF DATA: Secondary data The data was collected through secondary sources. As this project is a descriptive study, there is no questionnaire used to collect primary data or any other additional data. The secondary data source is through internet, from website of National Stock Exchange and collected from the various books The data collected for the study is secondary data. The data I have used for the study is 1.
Historical shares value of the stocks collected from ICICI
DIRECT.COM. Equitymaster.com Economywatch.com etc. Moneycontrol.com
Nseindia.com
THE DEFINITION OF A STOCK Stock is a share in the ownership of a company. Stock represents a claim on the company’s assets and earnings as you acquire more stock, your ownership stake in the Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd company becomes greater, whether you say shares, equity or stock, and it all means the same thing. Being an owner Holding a company’s stock means that you are one of the many owners (shareholder) of a company, and, as such, you have a claim to everything the company owns. As an owner, you are entitled to your share of the company’s earnings as well as any voting rights attached to the stock.
Example
stock
certificate A stock is represents stock
by
a
certificate.
This is a piece of paper that is proof of your ownership. In today’s computer age, stock records are kept electronically, which is also known as holding shares. 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 takes place with a click of the mouse or a phone call. Being a shareholder of a public company does not mean you can take part in the day-to-day running of the business. Instead, one vote per share to elect the board of directors at annual meetings is the extent to which you can take part in the company. For example: -being a Microsoft shareholder doesn’t mean you can call up bill gates and tell him how you think the company should be run. Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd The management of the company is supposed to increase the value of the firm for shareholders. If this doesn’t happen, the shareholders can vote to have the management removed. The importance of being a shareholder is that you are entitled to a portion of the company’s profits and have a claim on assets. Profits are sometimes paid out in the form of dividends. The more shares you own, the larger the portion of the profits you get. Your claim on assets is only relevant if a company goes bankrupt. In case of liquidation, you’ll receive what’s left after all the creditors have been paid. Another extremely important feature of stock is its limited liability, which means that, as an owner of a stock, you are not personally liable if the company is not able to pay its debts. Owning stock means that, the maximum value you can lose is the value of your investment. It must be emphasized that there are no guarantee when it comes to indivisual stocks. Some companies pay out dividends, but many others do not. And there is no obligation to pay out dividends even for those firms that have traditionally given them. Without dividends an investor can make money on a stock only through its appreciation in the open market i.e. through speculating stock price changes everyday by market forces. Stock Basics: what causes prices to Change? Stocks prices change everyday by market forces. By this we mean that share prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall. Understanding supply and demand is easy. What is difficult to comprehend is what makes people like a particular stock and dislike another stock. This comes down to figuring out what news is positive for a company and what news is negative. The price movement of a stock indicates what investors feel a company is worth. The value of a company is its market capitalization, which is the stock price multiplied by the number of shares outstanding. Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd For example, a company that trades at Rs. 100 per share and has 1,000,000 shares outstanding has a lesser value than a company that trades at Rs. 50 but has 5,000,000 shares outstanding (Rs.100 *1,000,000= Rs.100, 000,000 while Rs. 50 *5,000,000= Rs. 250,000,000). The price of a stock doesn’t only reflect a company’s current value; it also reflects the growth that investors expect in the future. The most important factor that affects the value of a company is its earnings. Earnings are the profit a company makes, and in the long run no company can survive without them. Public companies are required to report their earnings four times a year (once each quarter). National stock exchange watches with rabid attention at these times, which are referred to as earnings seasons. The reason behind this is that analysts base their value of a company on their earnings projection. If a company’s results surprise (are better than expected), the price jumps up. If a company’s results disappoint (are worse than expected), then the price will fall. Some believe that it isn’t possible to predict how stocks will change in price while others think that by drawing charts and looking at past price movements, you can determine when to buy and sell. The only thing we do know, as a certainty is that stocks are volatile and can change in price extremely rapidly.
The important things to consider about stocks are the following: •
At the most fundamental level, supply and demand in the market
determine stock price. •
Price
times
the
number
of
shares
outstanding
(market
capitalization)is the value of a company. •
Theoretically earnings are what affect investors’ valuation of a
company, but there are other indicators use to predict stocks price. It is Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd investor’s sentiments, attitudes, and expectations that ultimately affect stock prices. •
There are many theories that try to explain the way stock prices
move the way they do. Unfortunately, there is no one theory that can explain everything.
Stocks Basics: How to Read A Stock Table/Quote::: Any financial paper has stock quotes that will look something like the image below:
Columns 1 & 2: 52-Week High and Low -
These are the highest and lowest prices at which a
stock has traded over the previous 52 weeks (one year). This typically does not include the previous day's trading.
Column 3: Company Name & Type of Stock -
This column lists the name of the company. If
there are no special symbols or letters following the name, it is common stock. Different symbols imply different classes of shares. For example, "pf" means the shares are preferred stock.
Column 4: Ticker Symbol - This is the unique alphabetic name which identifies the stock. If you watch financial TV, you have seen the ticker tape move across the screen, quoting the latest prices alongside this symbol. If you are looking for stock quotes online, you always search for a company by the ticker symbol.
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd Column 5: Dividend Per Share space
is
blank,
the
company
Column 6: Dividend Yield -
This indicates the annual dividend payment per share. If this does
not
currently
pay
out
dividends.
The percentage return on the dividend. Calculated as annual dividends
per share divided by price per share.
Column 7: Price/Earnings Ratio - This is calculated by dividing the current stock price by earnings per share from the last four quarters. For more detail on how to interpret this, see our P/E Ratio tutorial.
Column 8: Trading Volume - This figure shows the total number of shares traded for the day, listed in hundreds. To get the actual number traded, add "00" to the end of the number listed.
Column 9 & 10: Day High and Low - This indicates the price range at which the stock has traded at throughout the day. In other words, these are the maximum and the minimum prices that people have paid
for
the
stock.
Column 11: Close - The close is the last trading price recorded when the market closed on the day. If the closing price is up or down more than 5% than the previous day's close, the entire listing for that stock is bold-faced. Keep in mind, you are not guaranteed to get this price if you buy the stock the next day because the price is constantly changing (even after the exchange is closed for the day). The close is merely an indicator of past performance and except in extreme circumstances serves as a ballpark of what you should expect to pay.
Column 12: Net Change - This is the dollar value change in the stock price from the previous day's closing price. When you hear about a stock being "up for the day," it means the net change was positive.
Stocks Basics: The Bulls, the Bears and the Farm On Wall Street, the bulls and bears are in a constant struggle. If you haven't heard of these terms already, you undoubtedly will as you begin to invest. 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. Things are just plain rosy! Picking stocks during a bull market is easier because everything is going up. Bull markets cannot last forever though, and sometimes
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd 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 sidelines 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".
The Other Animals on the Farm - Chickens and Pigs: Chickens are afraid to lose anything. Their fear overrides their need to make profits and so they turn only to money-market securities or get out of the markets entirely. While it's true that you should never invest in something over which you lose sleep, you are also guaranteed never to see any return if you avoid the market completely and never take any risk,
Pigs are high-risk investors looking for the one big score in a short period of time. Pigs buy on hot tips and invest in companies without doing their due diligence. They get impatient, greedy, and emotional about their investments, and they are drawn to high-risk securities without putting in the proper time or money to learn about these investment vehicles. Professional traders love the pigs, as it's often from their losses that the bulls and bears reap their profits. Dow Theory: Introduction:: Any attempt to trace the origins of technical analysis would inevitably lead to Dow theory. While more than 100 years old, Dow Theory remains the foundation of much of what we know today as technical analysis. Dow Theory was formulated from a series of Wall Street Journal editorials authored by Charles H. Dow from 1900 until the time of his death in 1902. These editorials reflected Dow’s beliefs on how the stock market behaved and how the market could be used to measure the health of the business environment.
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd Due to his death, Dow never published his complete theory on the markets, but several followers and associates have published works that have expanded on the editorials. Some of the most important contributions to Dow theory were William P. Hamilton's "The Stock Market Barometer" (1922), Robert Rhea's "The Dow Theory" (1932), E. George Schaefer's "How I Helped More Than 10,000 Investors To Profit
In
Stocks"
(1960)
and
Richard
Russell's
"The
Dow
Theory
Today"
(1961).
Dow believed that the stock market as a whole was a reliable measure of overall business conditions within the economy and that by analyzing the overall market; one could accurately gauge those conditions and identify the direction of major market trends and the likely direction of individual stocks
.
Much of what we know today as technical analysis has its roots in Dow’s work.
Dow Theory: The Three-Trend Market:: An important part of Dow theory is distinguishing the overall direction of the market. To do this, the theory uses trend analysis. Before we can get into the specifics of Dow theory trend analysis, we need to understand trends. First, it's important to note that while the market tends to move in a general direction, or trend, it doesn't do so in a straight line. The market will rally up to a high (peak) and then sell off to a low (trough), but will generally move in one direction.
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Figure 1: an uptrend An upward trend is broken up into several rallies, where each rally has a high and a low. For a market to be considered in an uptrend, each peak in the rally must reach a higher level than the previous rally's peak, and each low in the rally must be higher than the previous rally's low. A downward trend is broken up into several sell-offs, in which each sell-off also has a high and a low. To be considered a downtrend in Dow terms, each new low in the sell-off must be lower than the previous sell-off's low and the peak in the sell-off must be lower then the peak in the previous sell-off.
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Figure 2: a downtrend Now that we understand how Dow theory defines a trend, we can look at the finer points of trend analysis. Dow theory identifies three trends within the market: primary, secondary and minor. A primary trend is the largest trend lasting for more then a year, while a secondary trend is an intermediate trend that lasts three weeks to three months and is often associated with a movement against the primary trend. Finally, the minor trend often lasts less than three weeks and is associated with the movements in the intermediate trend. Let us now take a look at each trend.
Primary Trend: In Dow theory, the primary trend is the major trend of the market, which makes it the most important one to determine. This is because the overriding trend is the one that affects the movements in stock prices. The primary trend will also impact the secondary and minor trends within the market. Dow determined that a primary trend will generally last between one and three years but could vary in some instances. Babasabpatilfreepptmba.com
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Figure 3: an uptrend with corrections Regardless of trend length, the primary trend remains in effect until there is a confirmed reversal. For example, if in an uptrend the price closes below the low of a previously established trough, it could be a sign that the market is headed lower, and not higher. When reviewing trends, one of the most difficult things to determine is how long the price movement within a primary trend will last before it reverses. The most important aspect is to identify the direction of this trend and to trade with it, and not against it, until the
weight
of
evidence
suggests
that
the
primary
trend
has
reversed.
Secondary, or Intermediate, Trend: In Dow theory, a primary trend is the main direction in which the market is moving. Conversely, a secondary trend moves in the opposite direction of the primary trend, or as a correction to the primary trend.
For example, an upward primary trend will be composed of secondary downward trends. This is the movement from a consecutively higher high to a consecutively lower high. In
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd a primary downward trend the secondary trend will be an upward move, or a rally. This is the movement from a consecutively lower low to a consecutively higher low. Below is an illustration of a secondary trend within a primary uptrend. Notice how the short-term highs (shown by the horizontal lines) fail to create successively higher peaks, suggesting that a short-term downtrend is present. Since the retracement does not fall below the October low, traders would use this to confirm the validity of the correction within a primary uptrend.
Figure 4: a secondary trend w/ a primary uptrend
Another important characteristic of a secondary trend is that its moves are often more volatile than those of the primary move.
Minor Trend:
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd The last of the three trend types in Dow Theory is the minor trend, which is defined as a market movement lasting less than three weeks. The minor trend is generally the corrective moves within a secondary move, or those moves that go against the direction of the secondary trend.
Figure 5 Due to its short-term nature and the longer-term focus of Dow Theory, the minor trend is not of major concern to Dow Theory followers. But this doesn't mean it is completely irrelevant; the minor trend is watched with the large picture in mind, as these short-term price
movements
are a part of both the
primary and secondary trends.
Most proponents of Dow theory focus their attention on the primary and secondary trends, as minor trends tend to include a considerable amount of noise. If too much focus is placed on minor trends, it can to lead to irrational trading, as traders get distracted by short-term volatility and lose sight of the bigger picture.
Dow Theory: The Three Phases Of Primary Trends::
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd Since the most vital trend to understand is the primary trend, this leads into the third tenet of Dow theory, which states that there are three phases to every primary trend – the accumulation phase (distribution phase), the public participation phase and a panic phase (excess phase). Let us now take a look at each of the three phases as they apply to both bull and bear markets.
Primary Upward Trend (Bull Market): the Accumulation Phase: The first stage of a bull market is referred to as the accumulation phase, which is the start of the upward trend. This is also considered the point at which informed investors start to enter the market. The accumulation phase typically comes at the end of a downtrend, when everything is seemingly at its worst. But this is also the time when the price of the market is at its most attractive level because by this point most of the bad news is priced into the market, thereby limiting downside risk and offering attractive valuations. However, the accumulation phase can be the most difficult one to spot because it comes at the end of a downward move, which could be nothing more than a secondary move in a primary downward trend - instead of being the start of a new uptrend. This phase will also be characterized by persistent market pessimism, with many investors thinking things will only get worse. From a more technical standpoint, the start of the accumulation phase will be marked by a period of price consolidation in the market. This occurs when the downtrend starts to flatten out, as selling pressure starts to dissipate. The mid-to-latter stages of the accumulation phase will see the price of the market start to move higher.
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Figure 1: the accumulation phase A new upward trend will be confirmed when the market doesn't move to a consecutively lower low and high. Public Participation Phase: When informed investors entered the market during the accumulation phase, they did so with the assumption that the worst was over and a recovery lay ahead. As this starts to materialize, the new primary trend moves into what is known as the public participation phase. During this phase, negative sentiment starts to dissipate as business conditions marked by earnings growth and strong economic data - improve. As the good news starts to permeate the market, more and more investors move back in, sending prices higher. This phase tends not only to be the longest lasting, but also the one with the largest price movement. It's also the phase in which most technical and trend traders start to take long positions, as the new upward primary trend has confirmed itself - a sign these participants have waited for.
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Figure 2: the public participation phase
The Excess Phase As the market has made a strong move higher on the improved business conditions and buying by market participants to move starts to age, we begin to move into the excess phase. At this point, the market is hot again for all investors. During this phase, a lot of attention should be placed on signs of weakness in the trend, such as strengthening downward moves. Also, if the upward moves start to show weakness, it could be another sign that the trend may be near the start of a primary downtrend.
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Figure 3: the excess phase Primary Downward Trend (Bear Market): The Distribution Phase: The first phase in a bear market is known as the distribution phase, the period in which informed buyers sell (distribute) their positions. This is the opposite of the accumulation phase during a bull market in that the informed buyers are now selling into an overbought market instead of buying in an oversold market. In this phase, overall sentiment continues to be optimistic, with expectations of higher market levels. It is also the phase in which there is continued buying by the last of the investors in the market, especially those who missed the big move but are hoping for a similar one in the near future. As was the case in the accumulation phase, the distribution phase can be difficult to spot in its early stages. The reason for this is that it may be disguised as a secondary downward trend within the primary upward trend. From a technical standpoint, the distribution phase is represented by a topping of the market where the price movement starts to flatten as selling pressure increases. The mid to latter stages of the distribution phase will see prices start to fall as more and more investors, anticipating weakness, exit their positions. Babasabpatilfreepptmba.com
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A new downward trend will be confirmed when the previous trend fails to make another consecutive higher high and low. Public Participation Phase This phase is similar to the public participation phase found in a primary upward trend in that it lasts the longest and will represent the largest part of the move - in this case downward. During this phase it is clear that the business conditions in the market are getting worse and the sentiment is becoming more negative as time goes on. The market continues to discount the worsening conditions as selling increases and buying dries up. This is also the point at which most trend followers and technical traders start to dump their positions and take short positions as the new downward trend has confirmed itself. The Panic Phase The last phase of the primary downward market tends to be filled with market panic and can lead to very large sell-offs in a very short period of time. In the panic phase, the market is wrought up with negative sentiment, including weak outlooks on companies, the economy and the overall market. During this phase you will see many investors selling off their stakes in panic. Usually these participants are the ones that just entered the market during the excess phase of the previous run-up in share price. But just when things start to look their worst is when the accumulation phase of a primary upward trend will begin and the cycle repeats itself.
Dow Theory: Dow Theory Specifics:: Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd So far, we have discussed a lot of the ideas behind Dow theory along with its main tenets. In this section, we'll take a look at the technical approach behind Dow theory, such as how to identify trend reversals.
Closing Prices and Line Ranges Charles Dow relied solely on closing prices and was not concerned about the intraday movements of the index. For a trend signal to be formed, the closing price has to signal the trend, not an intraday price movement. Another feature in Dow theory is the idea of line ranges, also referred to as trading ranges in other areas of technical analysis. These periods of sideways (or horizontal) price movements are seen as a period of consolidation, and traders should wait for the price movement to break the trend line before coming to a conclusion on which way the market is headed. For example, if the price were to move above the line, it's likely that the market will trend up.
Signals and Identification of Trends One difficult aspect of implementing Dow theory is the accurate identification of trend reversals. Remember, a follower of Dow theory trades with the overall direction of the market, so it is vital that he or she identifies the points at which this direction shifts. One of the main techniques used to identify trend reversals in Dow theory is peakand-trough analysis. A peak is defined as the highest price of a market movement, while a trough is seen as lowest price of a market movement. Note that Dow theory assumes that the market doesn’t move in a straight line but from highs (peaks) to lows (troughs), with the overall moves of the market trending in a direction. An upward trend in Dow theory is a series of successively higher peaks and higher troughs. Babasabpatilfreepptmba.com
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Figure 1: Upward Trend A downward trend is a series of successively lower peaks and lower troughs.
Figure 2: Downward Trend The sixth tenet of Dow theory contends that a trend remains in effect until there is a clear sign that the trend has reversed. Much like Newton's first law of motion, an object in motion tends to move in a single direction until a force disrupts that movement. Similarly, the market will continue to move in a primary direction until a force, such as a change in business conditions, is strong enough to change the direction of this primary move. A reversal in the primary trend is signaled when the market is unable to create another successive peak and trough in the direction of the primary trend. For an uptrend, a reversal would be signaled by an inability to reach a new high followed by the inability to reach a higher low. In this situation, the market has gone from a period of successively Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd higher highs and lows to successively lower highs and lows, which are the components of a downward primary trend.
Figure 3: Upward Trend Reversal
The reversal of a downward primary trend occurs when the market no longer falls to lower lows and highs. This happens when the market establishes a peak that is higher than the previous peak followed by a trough that is higher than the previous trough, which are the components of an upward trend.
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Figure 4: Downward Trend Reversal
Technical Analysis: The Basic Assumptions: Technical analysis is a method of evaluating securities by analyzing 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. 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.
The field of technical analysis is based on three assumptions: 1.
The market discounts everything.
2.
Price moves in trends.
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd 3.
History tends to repeat itself.
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 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.
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 than 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 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 Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd chart patterns to analyze market movements and understand trends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves.
Technical Analysis: 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. Let's get into the details of how these two approaches differ, the criticisms against technical analysis and how technical and fundamental analysis can be used together to analyze securities.
The Differences: Charts vs. Financial Statements At the most basic level, a technical analyst approaches a security from the charts, while a fundamental analyst starts with the financial statements. By looking at the balance sheet, cash flow statement and income statement, a fundamental analyst tries to determine a company's value. In financial terms, an analyst attempts to measure a company's intrinsic value. In this approach, investment decisions are fairly easy to make - if the price of a stock trades below its intrinsic value, it's a good investment. Although this is an oversimplification (fundamental analysis goes beyond just the financial statements) for the purposes of this tutorial, this simple tenet holds true.
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd Technical traders, on the other hand, believe there is no reason to analyze a company's fundamentals because these are all accounted for in the stock's price. Technicians believe that all the information they need about a stock can be found in its charts.
Time Horizon 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 different timeframes that these two approaches use is a result of the nature of the investing style to which they each adhere. It can take a long time for a company's value to be reflected in the market, so when a fundamental analyst estimates intrinsic value, a gain is not realized until the stock's market price rises to its "correct" value. This type of investing is called value investing and assumes that the short-term market is wrong, but that the price of a particular stock will correct itself over the long run. This "long run" can represent a timeframe of as long as several years, in some cases Furthermore, the numbers that a fundamentalist analyzes are only released over long periods of time. Financial statements are filed quarterly and changes in earnings per share don't emerge on a daily basis like price and volume information. Also remember that fundamentals are the actual characteristics of a business. New management can't implement sweeping changes overnight and it takes time to create new products, marketing campaigns, supply chains, etc. Part of the reason that fundamental analysts use a long-term timeframe, therefore, is because the data they use to analyze a stock is generated much more slowly than the price and volume data used by technical analysts.
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd Technical Analysis: The Use of Trend: 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 chart below:
It isn't hard to see that the trend in Figure 1 is up. However, it's not always this easy to see a trend:
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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 highs.
Types of Trend: There are three types of trend: Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore”; it is affiliated to Ventura Securities Ltd • • •
Uptrend Downtrends Sideways/Horizontal Trends 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.
Trend Lengths
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 shortterm 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.
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Figure 4 When analyzing trends, it is important that the chart is constructed to best reflect 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. •
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.
Trend line: A line on the price or value chart of a security depicting the general direction in which the security is headed. This chart shows an example of an upward trend line: Babasabpatilfreepptmba.com
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Many people believe that prevailing trends, either up or down, will determine where a security is headed. Trend lines can be used to analyze individual securities, such as stocks, commodities or indexes, among other things.
A trendline is a simple charting technique that adds a line to a chart to represent the trend in the market or a stock. Drawing a trendline 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. As you can see in Figure 5, an upward trendline 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 trendline helps traders to anticipate the point at which a stock's price will begin moving upwards again. Similarly, a downward trendline 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. •
Channels
A channel, or channel lines, is the addition of two parallel trend lines that act as strong areas of support and resistance. The upper trendline connects a series of highs, while the lower trend line connects a series of lows. A channel can slope Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd 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.
Uptrend: Describes the price movement of a financial asset when the overall direction is upward. A formal uptrend is when each successive peak and trough is higher than the ones found earlier in the trend.
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Notice how each successive peak and trough is located above the previous ones. For example, the peak at Point 4 is higher than the peak at Point 2. The uptrend will be deemed
broken
if
the
next
low
on
the
chart falls
below
Point
5.
Uptrend is the opposite of downtrend The goal of most technical traders is to identify a strong uptrend and to profit from it until it reverses. Selling an asset once it has failed to create a new peak or trough is one of the best ways to avoid the large losses that can result from a reversed trend. Many technical traders will also draw trend lines to identify an uptrend and will use this tool as a guide for when to sell as it can also be an early indication of a trend reversa Downtrend: Describes the price movement of a financial asset when the overall direction is downward. A formal downtrend occurs when each successive peak and trough is lower than the ones found earlier in the trend.
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Notice how each successive peak and trough is lower than the previous one. For example, the low at Point 3 is lower than the low at Point 1. The downtrend will be deemed
broken
once
the
price
closes
above
the
high
at
Point
4.
Downtrend is the opposite of uptrend Many traders seek to avoid downtrends because they can drastically affect the value of any investment. A downtrend can last for minutes, days, weeks, months or even years so identifying a downtrend early is very important. Once a downtrend has been established (series of lower peaks) a trader should be very cautious about entering into any new long positions. Support: The price level which, historically, a stock has had difficulty falling below. It is thought of as the level at which a lot of buyers tend to enter the stock. Often referred to as the "support level".
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd If the price of a stock falls towards a support level it is a test for the stock: the support will either be reconfirmed or wiped out. It will be reconfirmed if a lot of buyers move into the stock, causing it to rise and move away from the support level. It will be wiped out if buyers will not enter the stock and the stock falls below the support. Resistance: The price at which a stock or market can trade, but not exceed, for a certain period of time. Often referred to as "resistance level".
The stock or market stops rising because sellers start to outnumber buyers.
Technical Analysis: Chart Types:: Babasabpatilfreepptmba.com
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There are four 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 and the point and figure chart. In the following sections, we will focus on the S&P 500 Index during the period of January 2006 through May 2006. Notice how the data used to create the charts is the same, but the way the data is plotted and shown in the charts is different. 1) Line Chart: The most basic of the four charts is the line chart because it represents only the closing prices over a set period of time. 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. However, the closing price is often considered to be the most important price in stock data compared to the high and low for the day and this is why it is the only value used in line charts.
Figure 1: A line chart 2 Bar Charts: Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd 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 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. Generally, if the left dash (open) is lower than the right dash (close) then the bar will be shaded black, representing an up period for the stock, which means it has gained value. A bar that is colored red signals that the stock has gone down in value over that period. When this is the case, the dash on the right (close) is lower than the dash on the left (open).
Figure 2: A bar chart
3) Candlestick Charts:
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd The candlestick chart is similar to a bar chart, but it differs in the way that it is visually constructed. Similar to the bar chart, the candlestick also has a thin vertical line showing the period's trading range. The difference comes in the formation of a wide bar on the vertical line, which illustrates the difference between the open and close. And, like bar charts, candlesticks also rely heavily on the use of colors to explain what has happened during the trading period. A major problem with the candlestick color configuration, however, is that different sites use different standards; therefore, it is important to understand the candlestick configuration used at the chart site you are working with. There are two color constructs for days up and one for days that the price falls. When the price of the stock is up and closes above the opening trade, the candlestick will usually be white or clear. If the stock has traded down for the period, then the candlestick will usually be red or black, depending on the site. If the stock's price has closed above the previous day’s close but below the day's open, the candlestick will be black or filled with the color that is used to indicate an up day.
Figure 3: A candlestick chart
4) Point and Figure Charts: Babasabpatilfreepptmba.com
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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.
Figure 4: A point and figure chart
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 Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd 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, signaling a trend change.
Technical Analysis: 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 sell signals. 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 chart patterns.
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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 in Figure 1, 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.
Figure 1: 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 in Figure 1, 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
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd 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.
Figure 2 As you can see in Figure 2, 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.
3) Double Tops and Bottoms:
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd 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.
Figure 3: 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 in Figure 3, 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.
4) 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 Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd symmetrical triangle, ascending and descending triangle. These chart patterns are considered to last anywhere from a couple of weeks to several months.
Figure 4 The symmetrical triangle in Figure 4 is a pattern in which two trendline 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 trendline is flat, while the bottom trendline 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 trendline is flat and the upper trendline is descending. This is generally seen as a
bearish
pattern
where
chartists
look
for
a
downside
breakout.
5) Flag and Pennant: Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd 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.
Figure 5
As you can see in Figure 5, 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 trendlines, 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 trendlines. In both cases, the trend is expected to continue when the price moves above the upper trendline.
6) Wedge: 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 Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd 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.
Figure 6 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. In Figure 6, we have a falling wedge in which two trendlines are converging in a downward direction. If the price was to rise above the upper trendline, it would form a continuation pattern, while a move below the lower trendline would signal a reversal pattern.
Gaps: A gap in a chart is an empty space between a trading period and the following trading period. This occurs when there is a large difference in prices between two sequential trading periods. For example, if the trading range in one period is between $25 and $30 and the next trading period opens at $40, there will be a large gap on the chart between these two periods. Gap price movements can be found on bar charts and candlestick charts but will not be found on point and figure or basic line charts. Gaps
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There are three main types of gaps, breakaway, runaway (measuring) and exhaustion. A breakaway gap forms at the start of a trend, a runaway gap forms during the middle of a trend and an exhaustion gap forms near the end of a trend.
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.
Figure 7 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. Babasabpatilfreepptmba.com
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8) Rounding Bottom: 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.
Figure 8 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.
Technical Analysis: 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 Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd 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
Babasabpatilfreepptmba.com
likelihood
that
it
will
reverse.
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Figure 1
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):
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd 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. As you can see in Figure 2, a 15-period EMA rises 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 returns.
Major Uses of Moving Averages:
Figure 2 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. As you can see in Figure 3, 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.
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Figure 3 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, like in Figure 4, it is a sign that the uptrend may be reversing.
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Figure 4 The other signal of a trend reversal is when one moving average crosses through another. For example, as you can see in Figure 5, if the 15-day moving average crosses above the 50-day moving average, it is a positive sign that the price will start to increase.
Figure 5 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.
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd 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.
Figure 6 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
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ANALYSIS
JP HYDRO TECHNICAL CHART: (20 DAYS RSI CHART AND 25 Days SMA &EMA Chart)
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JP HYDRO TECHNICAL CHART: (20 DAYS RSI CHART AND 50 Days SMA &EMA Chart)
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JP HYDRO TECHNICAL CHART: (20 DAYS RSI CHART AND 100 Days SMA &EMA Chart)
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JP HYDRO TECHNICAL CHART: (20 DAYS RSI CHART AND 200 Days SMA &EMA Chart)
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Analysis of stock price
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Company: JP HYDRO Trend: Long term for the JP Hydro has been bullish and medium term or intermediate trend turned bearish for scrip but the scrip has not yet broken of its strong support level of 35-40 level so no clear picture of end of the long term trend. Key Resistance and Support level: The scrip has strong support band of 25-40 and so we can say that the scrip has gone under long consolidation about one and half year. There had been a breakout in the month of July 2007 and registered a new intermediate resistance of at 80 range and after a short while of small correction the scrip has rallied till 130 level which acts as a resistance for the scrip. After major break down where the short term trend for the scrip turns bearish the scrip has registered support at 80 levels but as support was not sustainable the scrip has slight down till 60 level where the scrip is stabilizing and setting new support
Findings: Babasabpatilfreepptmba.com
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Trend: Long term trend for the scrip bullish Short term trend is bearish Target: Intermediate target---- Rs 80 Long term target-------Rs 180
NTPC Technical Chart: (20 DAYS RSI CHART AND 25 Days SMA &EMA Chart)
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NTPC Technical Chart: (20 DAYS RSI CHART AND 50 Days SMA &EMA Chart)
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NTPC Technical Chart: (20 DAYS RSI CHART AND 100 Days SMA &EMA Chart)
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NTPC Technical Chart: (20 DAYS RSI CHART AND 200 Days SMA &EMA Chart) Babasabpatilfreepptmba.com
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Analysis of stock price Babasabpatilfreepptmba.com
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Company: NTPC Trend: Long term for the NTPC has been bullish and medium term or intermediate trend turned bearish for scrip but the scrip has not yet broken of its strong support level of 140-50 level so no clear picture of end of the long term trend. Key Resistance and Support level: The scrip has strong support band of 135-150 and so we can say that the scrip has gone under long consolidation about one and half year. There had been a breakout in the month of Oct 2007 and registered a new intermediate resistance of at 220 range and after a short while of small correction the scrip has rallied till 280 level which acts as a resistance for the scrip. After major break down where the short term trend for the scrip turns bearish the scrip has registered support at 205 levels but as support was not sustainable the scrip has slight down till 185 level where the scrip is stabilizing and setting new support
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Findings: Trend: Long term trend for the scrip bullish Short term trend is bearish Target: Intermediate target---- Rs 225 Long term target-------Rs 335
NIFTY TECHNICAL CHART: (20 DAYS RSI AND 25 DAYS SMA&EMA CHART)
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NIFTY TECHNICAL CHART: (20 DAYS RSI AND 50 DAYS SMA&EMA CHART) Babasabpatilfreepptmba.com
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NIFTY TECHNICAL CHART: (20 DAYS RSI AND 100 DAYS SMA&EMA CHART)
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NIFTY TECHNICAL CHART: (20 DAYS RSI AND 200 DAYS SMA&EMA CHART)
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Analysis of stock price Babasabpatilfreepptmba.com
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NIFTY: Trend: Long term for the Nifty has been bullish and medium term or intermediate trend turned bearish for Nifty but the Nifty has not yet broken of its strong support level of 4200-4500 level so no clear picture of end of the long term trend. Key Resistance and Support level: The Nifty has strong support 4200-4500 level and if we see the two year closing price and 200 Days SME and EMA chart it is moving uptrend direction. There had been a breakout in the month of Jan 2008 and registered a new intermediate support of at 4800 level and after a short while of small correction the Nifty has rallied till 5600 level and again it couldn’t sustain at that level and it breaks it intermediate support level of 4800 level in the month and it test its strong support level of 4450. After major break down where the short term trend for the Nifty turns bearish the Nifty has registered support at 4575.
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Findings: Trend: Long term trend for the Nifty bullish Short term trend is bearish Target: Intermediate target---- 5500 level Long term target-------7500 level
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FINDINGS
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Findings: 3)
Support and resistance level are the levels where buying and selling pressure from investors does not allow the prices of securities to come down.
4)
The prices of securities are very sensitive; they react quickly to any event happening within its internal and external environment.
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Recommendations: 1. Remember that stocks are never too high for you to begin buying or too low to begin selling. But after the initial transaction, don't make a second unless the first shows you a profit. Babasabpatilfreepptmba.com
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2. If a stock doesn't act right, do not touch it; because, being unable to tell precisely what is wrong, you cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit.
3. Always sell what shows you a loss and keep what shows you a profit.
4. The principles of successful stock speculation are based on the supposition that people will continue in the future to make the mistakes that they have past.
5. Do not seek to lure the profit back. Quit while the quitting is good--and cheap.
6. Never buy a stock because it has had a big decline from its previous high.
7. There is only one side to the stock market; and it is not the bull side or the bear side but the right side. 8. Never act on tips always.
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd 9. A investor must believe in himself and his judgment if he expects to make a living at this game.
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CONCLUSION
The speculators’ chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you hope that every day will be the last day--and you lose more than you should had you not listened to hope--to the same pioneers, big and little. And when the market Babasabpatilfreepptmba.com
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“Geerak Marketing Equities & Derivatives of Bangalore�; it is affiliated to Ventura Securities Ltd goes your way you become fearful that the next day will take away your profit, and you get out--too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his losses may develop into a much bigger loss, and hope that his profit may become a bigger profit. It is absolutely wrong to gamble in stocks the way the average man does. A investor must believe in himself and his judgment if he expects to make a living at this game
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BIBLIOGRAPHY
BIBLIOGRAPHY HISTORICAL DATA OF THE COMPANY
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WEBSITES www.ventura1.com www.icicidirect.com www.google.com www.yahoo.com www.investopedia.com
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