A

SUMMER INTERNSHIP PROJECT ON

TECHNICAL ANALYSIS WITH THE HELP OF CANDLESTICK CHART IN

EQUITY MARKET.
FOR
SHARE KHAN LTD.
Submitted By
Santhosh I M
USN - 4AI18MBA43
Submitted To

VISVESVARAYA TECHNOLOGICAL UNIVERSITY, BELGAUM

In partial fulfilment of the requirement for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION

Under the guidance of

INTERNAL GUIDE
Mrs lilamuki
Assistant professor
Department of MBA
AIT, ChikamagalurMysore.

DEPARTMENT OF BUSINESS ADMINSTRATION

ADHICHUNCHANGIRI INSTITUTE OFTECHNOLOGY
2019-20
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1.Introduction:

The re-emergence of technical analysis as a viable and efficient approach to individual stock
selection and market analysis has drawn a great deal of interest among practitioners and
academicians.

Technical analysis, or the use of past prices to predict future prices, has been popular among
investors and financial analysts despite its criticisms levelled at it. All stock broking firms and
major daily newspaper analyze and publish technical commentary on the performance of the
market as whole and selected stocks on a daily basis. Public seminar and consulting firms that
solely based on technical analysis are even formed.

In today’s world companies become known or considered big when they are listed on reputed
Stock Exchanges namely NSE (NIFTY) & BSE (SENSEX) for India, Dowjones for USA,
HANGSENG for Hong Kong, NIKKEI for Japan, RTS for Russia etc.

Once the company is listed everything a company does / doesn’t is reacted upon by the public
and the prices of the share of the respective company fluctuate. Now the company would always
want a true picture of the company to be represented by share price, they wouldn’t mind if its
over valued but it hurts when the stocks get under valued.

But this uncertainty of the price gives people a chance to make money both in long term & short
term. Long term investment is mainly based upon studying fundamentals of the company and its
growth potential. A general investor can apply the principles by using the simplest of tools:
pocket calculator, pencil, ruler, chart paper & your cautious mind, watchful attention. It should
be pointed out that, this analysis does not discuss how to buy & sell shares, but does discuss a
method which enables the investor to arrive at buying & selling decision. The financial analysts
always need yardsticks to evaluate the efficiency & performances of any business unit at the time
of investment. Fundamental analysis is useful in long term investment decision. In Fundamental

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analysis company s goodwill, its performances, liquidity, leverage, turnover, profitability &
financial health was checked & analysis with the help of ratio analysis for the purpose of long
term successful investment.
Technical analysis refers to the study of market generated data like prices & volume to determine
the future direction of prices movements. Technical analysis mainly seeks to predict the short
term price travels. The focus of technical analysis is mainly on the internal market data, i.e.
prices & volume data. The real piece of magic lies in making money by trading shares either
Intraday or holding for a short term It appeals mainly to short term traders. If one wants to make
money in this way he / she needs to know the technical side of the stock i.e. charts, trends etc.
This analysis uses varied technical patterns and indicators for predicting future prices and trends
in the stock.

The main objective is to know the answers of following questions:

1. Where will stocks go from here?

2. Which stock will rise today and which ones will fall?
3. Should I hold it or square off my positions?
4. Why is hedging required / how is it done?

The emergence of equity markets in Asia provides great opportunities for local and global
investors. This paper examines some popularly used technical indicators and patterns, namely the
moving average, Moving Average Convergence and Divergence (MACD), relative strength
index (RSI), Stochastic Oscillator, Bollinger bands, Commodity Channel Index (CCI) etc. and
the patterns like Double Top, Double Bottom, Head and Shoulder Bottom Reversal / Top
Reversal, Rounding Top, Rounding Bottom, Flag and Pennant continuation, Triangles (
ascending, descending and symmetrical), Wedges, Megaphone Patterns etc. and breakout by
using different levels of length which are considered to be appropriate in the local trading
environment. The blue chip stocks of the National Stock Exchange (NSE) are used in this study.
The index is influenced more by local factors and forces rather than global information variables.

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This paper contributes to a more comprehensive understanding of the predictive ability and
technical analysis of stocks listed in NSE.

2.Literature Review:

Technical analysis is explained by “The technical approach to investigate is essentially a

reflection of the ides prices moves in trends which determined by the changing attitudes of the
investors toward a variety of economic, monitory, political and psychological forces. Technical
analyst do not attempts to measure a security’s intrinsic value, but instead use charts to identify
the patterns that can suggest future activity. Testing of technical analysis is important to enjoy
the benefits. William sharpe said “if you torture the data long enough, it will confess to any
crime” so the important is the rule must work on data other than that used to discover it.

There are many evidence to support technical analysis, in July 1990 journal of finance article,
Jaegadeesh found predictable patterns in monthly returns for the period 1934 to 1987. his study
reveals that stocks with large losses in one month tend to show a significant reversal in the
following month and vice versa. In December 2002 journal of finance article Lo, Mamaysky, and
Wang found that several technical indicators have some practical value as they provide
incremental information.

Brown and Jennings (1989) showed that technical analysis has value in a model in which prices
are not fully revealing and traders have rational conjectures about the relation between prices and
signals.
Frankel and Froot (1990) showed evidence for the rising importance of chartists.
Neftci (1991) showed that a few of the rules used in technical analysis generate well-defined
techniques of forecasting, but even well-defined rules were shown to be useless in prediction if
the economic time series is Gaussian. However, if the processes under consideration are non-
linear, then the rules might capture some information. Tests showed that this may indeed be the
case for the moving average rule.

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Taylor and Allen (1992) report the results of a survey among chief foreign exchange dealers
based in London in November 1988 and found that at least 90 per cent of respondents placed
some weight on technical analysis, and that there was a skew towards using technical, rather than
fundamental, analysis at shorter time horizons.

In a comprehensive and influential study Brock, Lakonishok and LeBaron (1992) analyzed 26
technical trading rules using 90 years of daily stock prices from the Dow Jones Industrial
Average up to 1987 and found that they all outperformed the market.

Blume, Easley and O’Hara (1994) show that volume provides information on information quality
that cannot be deduced from the price. They also show that traders who use information
contained in market statistics do better than traders who do not.

Cheol-Ho Park and Scott H. Irwin wrote ‘the profitability of technical analysis: A review’ Park
and Irwin (2004), an excellent review paper on technical analysis.

Kavajecz and Odders-White (2004) show that support and resistance levels coincide with peaks
in depth on the limit order book 1 and moving average forecasts reveal information about the
relative position of depth on the book. They also show that these relationships stem from
technical rules locating depth already in place on the limit order book.

3.Objective of Study:
The professional objectives which are being covered by me in this project are as following-

 To understand the Technical Analysis which is a security analysis technique that

claims the ability to forecast the future direction of prices through the study of past
market data
 To understand the use of charts and other tools to identify patterns that can suggest
future activity.

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  To understand the use of various technical indicators and patterns for evaluating
securities by analyzing the statistics generated by market activity, such as past prices
and volume.
 To test whether the investment yields any extra returns in stocks with the help of
technical indicators and patterns or not.

4.Methodology:

a) The study:
Technical analysis is a security analysis technique that claims the ability to forecast the future
direction of prices through the study of past market data, primarily price and volume. In its
purest form, technical analysis considers only the actual price and volume behavior of the market
or instrument. Technical analysts may employ models and trading rules based on price and
volume transformations, such as the relative strength index, moving averages, regressions, inter-
market and intra-market price correlations, cycles or, classically, through recognition of chart
patterns.
Technical analysis stands in distinction to fundamental analysis. Technical analysis "ignores" the
actual nature of the company, market, currency or commodity and is based solely on "the charts,"
that is to say price and volume information, whereas fundamental analysis does look at the actual
facts of the company, market, currency or commodity.

For example, any large brokerage, trading group, or financial institution will typically have both
a technical analysis and fundamental analysis team.
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.

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The major technical indicators will be uses for the study are:

Trend and trend patterns

Charts , line chart, bar chart , Japanese candlestick,point figure chart
Support and resistance chart
Price/chart pattern analysis
Moving average analysis

Tools for Data Collection:

This step helps in deciding and selecting the techniques that shall be used to collect relevant
information which can be used to solve the research problem. The techniques used by me for
data collection are:
 Secondary data
 Tertiary data

SECONDARY DATA

Secondary data means data are already available i.e., they refer to the data, which have already
been collected and analyzed by someone else.
Secondary data are:

 Internet
 Books
 Newspapers
 Publication of various associations
 Research reports

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My research will be based on the information available on the different secondary data sources
and guidance provided by my research guide who helped in interpreting the intricate data.

5:References:

BIBLIOGRAPHY

 Book- Research Methodology Methods and Techniques by C.R. Kothari, All About
Stock [Author - Mr. Esmehe Faerber], V. K. Bhalla- working capital management,
security ananlysis and portfolio management by Punithavathy Pandian.
 Newspapers ( Economic Times, Business Standard etc)
 Other Research Papers: Technical Analysis in the Malaysian Stock Market: An Empirical
Evidence, Understanding and Implementing Technical Analysis on Capital Markets,
Technical Analysis and the Stochastic Properties of the Jordanian Stock Market Index
Return, The Evaluation of the Lithuanian Stock Market with the Weak-form Market
Efficiency Hypothesis etc.

WEBLIOGRAPHY

 Moneycontrol.com
 www.nseindia.com
 www. Chittorgarh.com
 Profit.ndtv.com
 www.investopedia.com
 Websites of each Company.

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