8/22/2019 Raghavendra Lingaih 11XQCMA095 Technical Analysis

1/12

An effectiveness of Technical

Analysis Indicators in investing

decision of investors pertaining toNSE shares

RAGHAVENDRA LINGAIAH11XQCMA095

Specialization: Finance & Marketing

M. P. Birla Institute of Management

8/22/2019 Raghavendra Lingaih 11XQCMA095 Technical Analysis

2/12

Introduction

Technical analysis is the examination of pastprice movements in order to forecast futureprice movements. It uses price and volume

information only in order to forecast futureprice movements and trends.

Problem Statement An effectiveness of technical analysis

indicators in investing decision of investorspertaining to NSE.

8/22/2019 Raghavendra Lingaih 11XQCMA095 Technical Analysis

3/12

Objective of the Study1. To analyze whether technical indicators would

help in identifying profitable opportunities.

2. To determine the Point of entry and exit for a

trade or investment.

3. To find out the accuracy of technical analysis inindividual stock index price prediction.

4. This study will help us in understanding the use

of various technical indicators.5. To test the performance of the technical analysis

forecast applied on stock market by means of a

certain technical indicators.

8/22/2019 Raghavendra Lingaih 11XQCMA095 Technical Analysis

4/12

Research Design

Type of research Analytical

Data SourcesSecondary data

Data - Samples taken were sectorial indices from CNX

indices in NSE market. The indices selected are CNX-

Pharma, CNX-Auto, CNX-IT, CNX-Bank Nifty, CNX-

FMCG.

Sample size

Taken from 1st

January 2012 to 31st

December 2012.

Plan of AnalysisBollinger Bands, Relative Strength

Index,MACD,andRate of Change.

8/22/2019 Raghavendra Lingaih 11XQCMA095 Technical Analysis

5/12

Data Analysis(BOLLINGER BANDS) Investors trade in periods

of high volatility regionand avoid trading in

periods of low volatility.

When there is more

volatility a trend can beestablished while, when

there is low volatility there

is no trend but it is marked

by sideways movement.

CNX-FMCG index with Bollinger Bands from 1st January 2012 to 31stDecember 2012

8/22/2019 Raghavendra Lingaih 11XQCMA095 Technical Analysis

6/12

RSI RSI indicator is anindicator whichindicates trend reversal.It acts as the point of

entry and exit formarket participant.

It tells investors thepoint of entry for abullish or bearish phase.

It also indicates whetherthe scrip is overboughtor oversold.

There was three pointsof entry for investorsand traders to go on along position.

There was two points ofentry for investors andtraders to go on a shortselling position.

CNX-IT index with RSI from 1stJanuary 2012 to 31stDecember 2012

8/22/2019 Raghavendra Lingaih 11XQCMA095 Technical Analysis

7/12

MACD There were four buying

opportunities and twoselling opportunities.

There was three points of

entry for investors andtraders to go on a longposition (T-1, T-3, and T-4).

There was two points ofentry for investors andtraders to go on a shortselling position (T-2 and T-

5). However there were not

many trading opportunitiesin 2012.

The sideways movementindicates a period ofuncertainty where investors

cannot enter or exit amarket.

It is marked by a period oflow volume trading asinvestors are uncertainwhich way the index isheaded. CNX-Bank Nifty index with MACD from 1st

January 2012 to 31st December 2012

8/22/2019 Raghavendra Lingaih 11XQCMA095 Technical Analysis

8/12

RATE OF CHANGEROC = [(Close - Close nperiods ago) / (Close nperiods ago)] x 100

There was two buyingopportunities whereinvestors were able togo for a long positionwhich are indicated bytrends (T-1,T-3,).

There was one selling

opportunity whereinvestors were able tosell short which areindicated by trends (T-2).

However there were notmany trading

opportunities in 2012. When there is sideways

movement there isreduction in volume ofthe index being traded.

1CNX-Auto index with ROC from 1st January 2012 to 31st

December 2012

8/22/2019 Raghavendra Lingaih 11XQCMA095 Technical Analysis

9/12

Summary of FindingsBoillenger Bands:

1. Good trading indicator.

2. The interval between the upper and lower bands and the middle band is determined byvolatility.

3. Points of entry and were determined.

RSI

1. Used for determining tops & bottoms, failure swings, support & resistances, & also for anydivergences. RSI is a reliable indicator & can be used to make buying & selling decision.

2. Method of analysing in RSI is to look for a divergence in which the security is making anew high, but the RSI is failing to surpass its previous high. This divergence is an indicationof an impending reversal.

3. Points of entry and exit were determined.

MACD

1. It also helps the trader in making buy & sell decisions with the help of crossovers. MACDprovides the most reliable buy & sell signals, & almost all the signals are profit making.

2. The sideways movement indicates a period of uncertainty where investors cannot enter orexit a market.

ROCE

1. When ROC moving average line crosses over ROC line. The ROC (10day) line comesunder ROC moving average line which indicates a beginning of the bearish trend.

2. ROC moving average line are near zero line indicates stock is headed for sidewaysmovement. Zero line indicates the point of equilibrium.

8/22/2019 Raghavendra Lingaih 11XQCMA095 Technical Analysis

10/12

Conclusion

The technical indicators can play a useful role in the timing ofstock market entry and exits. The study shows that Technicalanalysis indicators can give a fair idea about future pricemovements in stock market.

Suggestions1. Investors and traders are advised to trade with MACD-RSI

combination. Investors are suggested to look for acombination of indicators before taking decision.

2. A single indicator is not enough for arriving at selling orbuying decisions. Combinations of indicators are required for

more accurate decisions.3. Even though Technical analysis itself is enough for making

decisions in the stock market, but simultaneous use of bothFundamental & Technical analysis will reduce errors inforecasting future prices.

8/22/2019 Raghavendra Lingaih 11XQCMA095 Technical Analysis

11/12

Suggestions1. Institutional and retail investors are in a position to buy if prices are at the lower

band level and sell when prices are reaching near upper band level. At highvolatility there is considerable differences between upper band and lower band.

2. When Bollinger Bands are applied to a stock chart investors are suggested not tobuy or sell in region of low volatility as it indicates a period of uncertainty. It isindicated with upper and lower bands coming close to each other. This indicatessideways movement.

3. Retail investors are suggested not to buy the stock and institutional investors aresuggested to hold on to existing position.

4. When trading with Relative Strength Index the stock is indicated as oversoldwhen a it is near 30%. This formed an entry point for investors to buy the stockand go for a long position.

5. When RSI is above 70% this indicates the stock is overbought. This forms as anentry point for investors to short sell. This was indication of bearish trend. Here

retail and institutional investors are suggested to sell the stock.6. Investors and traders are advised to trade with Rate of change (ROC) 12- dayperiod than ROC 10day period as shown in the study.

7. When ROC(10-day) and ROC moving average line are near equilibrium, it is anindication of sideways movement, retail investors and traders are advised notventure into any new trade or investment and institutional investors are suggestedto hold on to existing positions.

8/22/2019 Raghavendra Lingaih 11XQCMA095 Technical Analysis

12/12

THANK YOU