MATHEMETICAL INDICATORS-EFFECTIVE TOOL FOR SECURITY ANALYSIS

*K.MAHENDER REDDY
(HOD, MBA DEPT, SREE CHAITANYA INSTITUTE OF TECHNOLOGICAL SCIENCES, KARIMNAGAR)
**MD ASIF UR RAHMAN,
(ASST.PROF. SREE CHAITANYA INSTITUTE OF TECHNOLOGIAL SCIECES, KARIMNAGAR).

India is a developing country. Now a days many people are interested to invest in financial
markets especially on equities to get high returns. Equities are playing a major role in
contribution of capital to the business from the beginning. Since the introduction of shares
concept, large numbers of investors are showing interest to invest in the capital market but the
investor has some confusion that when to buy the stock and when to sell the stock for this the
security analysis developed to concepts i.e. fundamental analysis and technical analysis,
fundamental analysis will consider the ground reality of the particular company by studying
economic,industry,company factors but coming to the technical analysis by using several
indicators they analyses the relationship between price-volume and supplydemand for the
overall market and the individual stock. It is a process of identifying trend reversals at an earlier
stage to formulate the buying and selling strategy
OBJECTIVES OF THE STUDY
The study in detail the concept of mathematical indicators.
To benefit the investor by explaining when to buy when to sell
METHODOLOGY
Secondary data:
Security analysis and portfolio management text book
Journals and magazines
News papers
Websites
.
TECHNICAL ANALYSIS
Price of securities in the stock market fluctuate daily on account of continuous buying and
selling stock prices move In trends and cycles and are never stable an investor in the stock
market is interested in buying securities at low price and selling then at high price so as to get a
good return on his investment he therefore ,tries to analyze the movement of share prices in the
market two approaches are commonly used for this purpose one of these is the fundamental
analysis where in the analyst tries to determine the true worth or intrinsic value of a share based
on the current and future earning capacity of the company ,he would buy the share when its
market price is below its intrinsic value the second approach to security analysis is called
technical analysis it is an intrinsic value the second approach to security analysis is called
technical analysis is called technical analysis it is an alternative approach to the study of stock
price behavior

A technical analyst believes that share price are determined by the demand &supply forces
operating in the market these demand and supply forces in turn are influenced by a no of
fundamental factors as well as certain psychological or emotional factors many of these factors
cannot be quantified the combined impact of all these factors as reflected in the share price
movement a technical analyst therefore concentrates on the movement of share prices he claims
that by examining past share price movements future share prices can be accurately predicted
technical analysis is the name given to forecasting technique that utilize historical share price
data the rationale behind technical analysis is that share price behavior repeats itself over time
and analysts attempt to derive method to predict this repetition a technical analyst looks at the
past share price data to see if they can establish any pattern he then looks at current price data to
see if any of the established patterns are applicable and if so extrapolations can be made to
predict the future price movements although past share price are the major data used by technical
analysiss other statics such as volume of trading and stock market indicates are also utilized to
some extent
The basics purpose of technical analysis is that price move in trends of waves which may be
upward or down word it is believed that the present trends are influenced by the past
trends and that the projection of future trends is possible by on analysts of past price
trends a technical analyst ,therefore , analysis the price and volume movements of
individual securities as well as the market index thus technical analysis is really a study of
past or historical price and volume movements so as to predict the future stock price
behavior
MATHEMATICAL INDICATORS
Share price do not rise or fall in straight lines the movements are erratic, this makes it difficult
for the analyst to gauge the underlying trend he can use the mathematical tool of moving
average to smoothen out the apparent erratic movements of share price and highlight the
underlying trend
MOVING AVERAGES
Moving averages are mathematical indicators of the underlying trend of the price movements 2
types of moving averages (MA) are commonly used by analysts the simple moving average
and the exponential moving average the closing prices of shares are generally used for the
calculation of moving averages
SIMPLE MOVING AVERAGE
An average is the sum of the price of a share for specific no of days divided by the no of
days in a simple moving average a set of averages are calculated for a specific number of
days each average being calculated by including a new price and excluding on old price
EXPONENTIAL MOVING AVERAGE
Exponential moving average EMA is

calculated by using the following formula

EMA= (current closing price previous EMA)*factor +previous EMA

Where, Factor=2/n+1

And n= number of days for which the average is to be calculated

RATE OF CHANGE
It is a very popular oscillator which measures the rate of change of the current price as compared
to the price a certain number of days or weeks back to calculate a 7 day rate of change each days
prices is divided by then its subtracted from this price ratio

ROC= current price -1

Price nperid ago
The roc values may be positive ,negative or zero an ROC chart is shown where the X axis
represents the time and the Y axis represents the value of the ROC ;the roc values oscillate
across the zero line ,when the ROC line is a above the zero line ,the price is rising and when it
is below the ROC line the price is falling
Ideally, one should by a share that is oversold and sell a share that is over a bought in the ROC
the overbought zone is above the zero line and the oversold zone is below the zero line,
Many analysts use the zero line for identifying buying and selling opportunities up side crossing
(from below to above the zero line) indicate a buying opportunity, while a down side crossing
(from above to below the zero line) indicate a selling opportunity
The buying and selling signals indicated by the roc should signals indicated by the roc
should also be confirmed by the price chart
RSI (Relative strength index)
This is a power full indicator that signals buying and selling opportunities ahead of the market
RSI for a share is calculated by using the following formula.
RSI=100-[100/(1+RS)]
Where
RS = Average gain per day
Average loss per day

SIMPLE MOVING AVERAGE SHARE PRICES IN 3 MONTHS

Power grid
Date
closing price
total price of 5 days
5 day moving average
2-Apr-12
108.6
3-Apr-12
110.1
4-Apr-12
110.85
9-Apr-12
109.7

10-Apr-12
11-Apr-12
12-Apr-12
13-Apr-12
16-Apr-12
17-Apr-12
18-Apr-12
19-Apr-12
20-Apr-12
23-Apr-12
24-Apr-12
25-Apr-12
26-Apr-12
27-Apr-12
28-Apr-12
30-Apr-12
2-May-12
3-May-12
4-May-12
7-May-12
8-May-12
9-May-12
10-May-12
11-May-12
14-May-12
15-May-12
16-May-12
17-May-12
18-May-12
21-May-12
22-May-12
23-May-12
24-May-12
25-May-12
28-May-12
29-May-12
30-May-12
31-May-12
1-Jun-12
4-Jun-12
5-Jun-12
6-Jun-12
7-Jun-12
8-Jun-12
11-Jun-12
12-Jun-12
13-Jun-12

110.4
111.7
111.75
112
111.85
113.6
113.85
114.65
113.85
110.75
110
108.45
108.1
108.25
108.6
111.25
109.6
108.65
106.75
105.8
105.75
104.25
102.5
101.35
101.25
102.9
104.55
104.75
105.1
103.95
103.7
103.6
105.35
104.1
106.4
107.35
106.1
106.15
103.65
104.05
105.95
109.65
108.05
107
107.25
107.65
107.6

549.65
552.75
554.4
555.55
557.7
560.9
563.05
565.95
567.8
566.7
563.1
557.7
551.15
545.55
543.4
544.65
545.8
546.35
544.85
542.05
536.55
531.2
525.05
519.65
515.1
512.25
512.55
514.8
518.55
521.25
522.05
521.1
521.7
520.7
523.15
526.8
529.3
530.1
529.65
527.3
525.9
529.45
531.35
534.7
537.9
539.6
537.55

109.93
110.55
110.88
111.11
111.54
112.18
112.61
113.19
113.56
113.34
112.62
111.54
110.23
109.11
108.68
108.93
109.16
109.27
108.97
108.41
107.31
106.24
105.01
103.93
103.02
102.45
102.51
102.96
103.71
104.25
104.41
104.22
104.34
104.14
104.63
105.36
105.86
106.02
105.93
105.46
105.18
105.89
106.27
106.94
107.58
107.92
107.51

14-Jun-12
15-Jun-12
18-Jun-12
19-Jun-12
20-Jun-12
21-Jun-12
22-Jun-12
25-Jun-12
26-Jun-12
27-Jun-12
28-Jun-12
29-Jun-12

105.7
106.05
107.05
108.75
108.4
109.75
110.05
107.85
109.85
109.8
109.7
113.55

535.2
534.25
534.05
535.15
535.95
540
544
544.8
545.9
547.3
547.25
550.75

107.04
106.85
106.81
107.03
107.19
108
108.8
108.96
109.18
109.46
109.45
110.15

Interpretation: the average price of 1st five days 110 it has reached 15th day the

average price is 114 better to sold it Then after 29 th day it has reached
102 price better to buy it . It has the reached short time high price then
after fall down again push the stock, it has volatility and minimum
return.

Exponential moving average

EMA= (current closing price previous EMA)*factor +previous EMA
Where
Factor=2/n+1
And n= number of days for which the average is to be calculated
Calculations:
Factor = 2

2/6=0.33

5+1
The EMA for the 1st day is taken as the closing price of that as the closing price of that day
itself .the EMA for the second day is calculated as below.

EMA= (current closing price previous EMA)*factor +previous EMA

= (110.1-108.6)*0.33+108.6=109.1

POWER GRID 3 MONTHS DATA

Date
2-Apr-12
3-Apr-12
4-Apr-12
9-Apr-12
10-Apr-12
11-Apr-12
12-Apr-12
13-Apr-12
16-Apr-12
17-Apr-12
18-Apr-12
19-Apr-12
20-Apr-12
23-Apr-12
24-Apr-12
25-Apr-12
26-Apr-12
27-Apr-12
28-Apr-12
30-Apr12
2-May-12
3-May-12
4-May-12
7-May-12
8-May-12
9-May-12
10-May-12
11-May-12
14-May-12
15-May-12
16-May-12
17-May-12
18-May-12
21-May-12
22-May-12
23-May-12
24-May-12
25-May-12
28-May-12
29-May-12
30-May-12
31-May-12
1-Jun-12
4-Jun-12
5-Jun-12
6-Jun-12
7-Jun-12
8-Jun-12
11-Jun-12
12-Jun-12

closing
price
108.6
110.1
110.85
109.7
110.4
111.7
111.75
112
111.85
113.6
113.85
114.65
113.85
110.75
110
108.45
108.1
108.25
108.6
111.25
109.6
108.65
106.75
105.8
105.75
104.25
102.5
101.35
101.25
102.9
104.55
104.75
105.1
103.95
103.7
103.6
105.35
104.1
106.4
107.35
106.1
106.15
103.65
104.05
105.95
109.65
108.05
107
107.25
107.65

exponent
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333
0.333333333

EXPONENTIAL
MA
108.6
109.1
109.6833333
109.6888889
109.9259259
110.517284
110.9281893
111.2854595
111.4736397
112.1824265
112.7382843
113.3755229
113.5336819
112.6057879
111.737192
110.6414613
109.7943075
109.2795384
109.0530256
109.7853504
109.7235669
109.3657113
108.4938075
107.5958717
106.9805811
106.0703874
104.8802583
103.7035055
102.8856703
102.8904469
103.4436313
103.8790875
104.2860583
104.1740389
104.0160259
103.8773506
104.3682337
104.2788225
104.9858817
105.7739211
105.8826141
105.9717427
105.1978285
104.815219
105.1934793
106.6789862
107.1359908
107.0906605
107.1437737
107.3125158

Interpretation: It started at 108 it reached 114 in short period then after fall

down 102 again push the price it reached 110 it has observing fall down
more and it reached same place

RATE OF CHANGE (ROC):

The ROC value we can identifying 0 point above line is overbought below the line is over sold
ROC= current price -1
Price nperid ago

POWER GRID 3 MONTHS ROC

Date
2-Apr-12
3-Apr-12
4-Apr-12
9-Apr-12
10-Apr-12
11-Apr-12
12-Apr-12
13-Apr-12
16-Apr-12
17-Apr-12
18-Apr-12
19-Apr-12
20-Apr-12
23-Apr-12
24-Apr-12
25-Apr-12
26-Apr-12
27-Apr-12
28-Apr-12
30-Apr-12
2-May-12
3-May-12
4-May-12
7-May-12
8-May-12
9-May-12
10-May-12
11-May-12
14-May-12
15-May-12
16-May-12
17-May-12

closing price
108.6
110.1
110.85
109.7
110.4
111.7
111.75
112
111.85
113.6
113.85
114.65
113.85
110.75
110
108.45
108.1
108.25
108.6
111.25
109.6
108.65
106.75
105.8
105.75
104.25
102.5
101.35
101.25
102.9
104.55
104.75

closing price
price ratio
ROC =Ratio -1
7days ago
-------------------------------------------108.6
1.031308
0.031307551
110.1
1.015895
0.015894641
110.85
1.024808
0.0248083
109.7
1.03783
0.037830447
110.4
1.038496
0.038496377
111.7
1.019248
0.019247986
111.75
0.991051
0.008948546112
0.982143
-0.017857143
111.85
0.969602
-0.030397854
113.6
0.951585
-0.048415493
113.85
0.950812
-0.049187527
114.65
0.947231
-0.052769298
113.85
0.977163
-0.022837066
110.75
0.989616
-0.010383747
110
0.987727
-0.012272727
108.45
0.984325
-0.015675426
108.1
0.978723
-0.021276596
108.25
0.976905
-0.023094688
108.6
0.959945
-0.040055249
111.25
0.921348
-0.078651685
109.6
0.924726
-0.075273723
108.65
0.931891
-0.068108606
106.75
0.963934
-0.036065574
105.8
0.988185
-0.011814745
105.75
0.990544
-0.009456265

18-May-12
21-May-12
22-May-12
23-May-12
24-May-12
25-May-12
28-May-12
29-May-12
30-May-12
31-May-12
1-Jun-12
4-Jun-12
5-Jun-12
6-Jun-12
7-Jun-12
8-Jun-12
11-Jun-12
12-Jun-12
13-Jun-12
14-Jun-12
15-Jun-12
18-Jun-12
19-Jun-12
20-Jun-12
21-Jun-12
22-Jun-12
25-Jun-12
26-Jun-12
27-Jun-12
28-Jun-12
29-Jun-12

105.1
103.95
103.7
103.6
105.35
104.1
106.4
107.35
106.1
106.15
103.65
104.05
105.95
109.65
108.05
107
107.25
107.65
107.6
105.7
106.05
107.05
108.75
108.4
109.75
110.05
107.85
109.85
109.8
109.7
113.55

104.25
102.5
101.35
101.25
102.9
104.55
104.75
105.1
103.95
103.7
103.6
105.35
104.1
106.4
107.35
106.1
106.15
103.65
104.05
105.95
109.65
108.05
107
107.25
107.65
107.6
105.7
106.05
107.05
108.75
108.4

1.008153
1.014146
1.023187
1.02321
1.02381
0.995696
1.015752
1.021408
1.020683
1.023626
1.000483
0.98766
1.017771
1.030545
1.006521
1.008483
1.010363
1.038591
1.034118
0.99764
0.967168
0.990745
1.016355
1.010723
1.019508
1.02277
1.020341
1.035832
1.025689
1.008736
1.047509

0.008153477
0.014146341
0.023186976
0.023209877
0.023809524
-0.004304161
0.01575179
0.021408183
0.020683021
0.023625844
0.000482625
-0.01233982
0.017771374
0.030545113
0.006520727
0.008482564
0.010362694
0.038591413
0.034118212
-0.002359604
-0.032831737
-0.009254975
0.01635514
0.010722611
0.019507664
0.022769517
0.020340587
0.035832155
0.02568893
0.008735632
0.047509225

Interpretation: The analysis of the period has identified the oversold is the 13 between 21st it
has over sold the price bearish trend to bullish to moved

RSI (relative strength index): The Value we can calculate the value above line of value we can
consider the over bought it indicates buying and below the line considered the oversold. A
sell signal indicated
RSI=100-[100/(1+RS)]
Where
RSI = Average gain per day
Average loss per day
Calculations: The 14 days average gain is= 0.59032258,
The 14 days average loss is= -0.5104839
RS=0.59032258 =0.07983868
-0.5104839
RSI=100-[100/(1+0.079)]
=100-(100/1.079)
=100-92.67
=7.33

POWERGRID 3 MONTHS RSI

Date
2-Apr-12
3-Apr-12
4-Apr-12
9-Apr-12
10-Apr-12
11-Apr-12
12-Apr-12
13-Apr-12
16-Apr-12
17-Apr-12
18-Apr-12
19-Apr-12
20-Apr-12
23-Apr-12
24-Apr-12
25-Apr-12
26-Apr-12
27-Apr-12
28-Apr-12
30-Apr-12
2-May-12

closing price
108.6
110.1
110.85
109.7
110.4
111.7
111.75
112
111.85
113.6
113.85
114.65
113.85
110.75
110
108.45
108.1
108.25
108.6
111.25
109.6

change over previous day

Gain
loss
1.5
0.75
-1.15
0.7
1.3
0.05
0.25
-0.15
1.75
0.25
0.8
-0.8
-3.1
-0.75
-1.55
-0.35
0.15
0.35
2.65
-1.65

3-May-12
4-May-12
7-May-12
8-May-12
9-May-12
10-May-12
11-May-12
14-May-12
15-May-12
16-May-12
17-May-12
18-May-12
21-May-12
22-May-12
23-May-12
24-May-12
25-May-12
28-May-12
29-May-12
30-May-12
31-May-12
1-Jun-12
4-Jun-12
5-Jun-12
6-Jun-12
7-Jun-12
8-Jun-12
11-Jun-12
12-Jun-12
13-Jun-12
14-Jun-12
15-Jun-12
18-Jun-12
19-Jun-12
20-Jun-12
21-Jun-12
22-Jun-12
25-Jun-12
26-Jun-12
27-Jun-12
28-Jun-12
29-Jun-12

108.65
106.75
105.8
105.75
104.25
102.5
101.35
101.25
102.9
104.55
104.75
105.1
103.95
103.7
103.6
105.35
104.1
106.4
107.35
106.1
106.15
103.65
104.05
105.95
109.65
108.05
107
107.25
107.65
107.6
105.7
106.05
107.05
108.75
108.4
109.75
110.05
107.85
109.85
109.8
109.7
113.55

-0.95
-1.9
-0.95
-0.05
-1.5
-1.75
-1.15
-0.1
1.65
1.65
0.2
0.35
-1.15
-0.25
-0.1
1.75
-1.25
2.3
0.95
-1.25
0.05
-2.5
0.4
1.9
3.7
-1.6
-1.05
0.25
0.4
-0.05
-1.9
0.35
1
1.7
-0.35
1.35
0.3
-2.2
2
-0.05
-0.1
3.85
36.6
0.59032258

-31.65
-0.5104839

Interpretation: the duration of the period of the RSI value is 7.33 the above line 7 is considered
the overbought below the line it considered the over sold
FINDINGS:
It is useful to compares to the overbought (buying) and over sold (selling) positions.
It helps the investor, is right time to investor right time to hold, and right time to sell. If
the prices are high than we can sell & then after may fall down price we can invest so
that the risk is minimized
We can identify the bullish and bearish trend movement
We can find the average gain per day &loss per day
We can find the average price of last days
SUGESSTIONS&CONCLUSIONS:
As investment belongs to long term and short term, it needs careful analysis.
Investment type depends upon the type of investor.
Long term investment needs the analysis of fundamentals and shot term need technical
analysis.
The tool or the indicators of the technical analysis are very useful
BIBLIOGRAPHY
Security Analysis and Portfolio Management by S.Keivn,
Security analysis and portfolio management by V.A. Avadhani
Economic times
Business line
www.nseindia.com
www.bseindia.com
www.investopedia.com
www.moneycontrol.com
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