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Udai Institute of Management Studies

Jaipur

A PROJECT REPORTOn

“Introduction of Technical & Fundamental Analysis & How

does Technical Analysis help to take Investment Decision"

At

Sharekhan Limited

Submitted in Partial Fulfillment of the Requirements

of

Post Graduation Diploma in Management

(2010-2012)

At


Jaipur

Submitted To-: Submitted By-:Prof. Ajay Kumar Pandey Surendra Singh Bhati

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ACKNOWLEDGEMENT

Summer training is one of the vital and active parts of the curriculum of management

students. The basic idea behind this is to strengthen the student‟s concept throughpractical training and make them acquainted with actual methods and procedures.

I did the work as Management Trainee at Sharekhan Limited at Johri Market, Jaipur

for a period of 45 Days starting from 23rd May 2011.

I would like to extend my heartfelt gratitude to Mr. Brijesh Shrivastava, Branch

Manager of ShareKhan Ltd. Jaipur, for his guidance throughout the project.

Without his support and co-operation I would have failed in my endeavors and targets

in the summer training. I take this opportunity to say “Thank You Sir”.

I would also like to thank all the Employees of our branch at Johri Market, Jaipur, for

providing me the required knowledge, information and material to have a clear idea of

what securities market is all about.

It is a great pleasure for me to put on records my appreciation and gratitude towards

Prof. Ajay Kumar Pandey (Faculty Guide) for his valuable support and suggestions

for the improvement and editing of this project report.

I would also like to thank Dr. Neeran Gautam (Director UIMS) for his guidanceand moral support in my academic persuasion and providing insight to this topic.

Last but not the least; I would like to thank Prof. Nishith Saxena for his valuable

support during the project directly or indirectly.

Thanking You.

Surendra Singh Bhati

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PREFACE

As the part of my PGDM curriculum I was required to undergo summer training in a

business organization for 45 days. I approached ShareKhan Limited at Johri

Market, Jaipur for this purpose and got an opportunity to get training from Mr.

Brijesh Shrivastava (Branch Manager) who readily agreed to extend his cooperation.

The project was assigned to me by the organization. The topic of my project was

“Introduction of Technical & Fundamental Analysis & How does Technical

Analysis help to take Investment Decision". In this record I have put my best

efforts to compile the data to the highest level of accuracy and give my views to the

best of my judgment.

Surendra Singh

Bhati

PGDM 2010-12

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CONTENTS

Sr. No. Particulars Page No.

1 Introduction of Security Market in India 5

2 Stock Market Development in India 12

3 Introduction to SEBI 16

4 Company Profile- Introduction of Sharekhan Ltd. 19

5 Vision, Mission and Objectives 20

6 Reason to Choose Sharekhan Ltd. 21

7 Products and Services 22

8 Introduction of Fundamental and Technical Analysis 23

Fundamental Analysis Tools 25

Strength of Fundamental Tools 27

Weakness of Fundamental Tools 28

Technical Analysis- History 30

General Steps of Technical Evaluation 31

Basics of Technical Analysis 32

Strength of Technical Analysis 33

Weakness of Technical Analysis 35

Tools of Technical Analysis 36

Technical Analysis: Use of Trend 52

Types of Technical Analysis 54

9 Learning 56

10 Conclusion 58

11 Findings 58

12 Recommendation 58

13 Limitation of Study 59

14 Bibliography 60

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Types of securities

Share

Debentures

BondsGovernment Securities

Derivative products

Units of Mutual Funds etc.

Securities Market

A place or places where securities are bought and sold, the facilities and people

engaged in such transactions, the demand for and availability of securities to be

traded, and the willingness of buyers and sellers to reach agreement on sales.

Securities markets include over-the-counter markets, the Bombay Stock Exchange(BSE), National Stock Exchange (NSE), the Chicago Board of Trade and the

American Stock Exchange.

Functions of Securities Market

Securities Markets is a place where buyers and sellers of securities can enter into

transactions to purchase and sell shares, bonds, debentures etc. Further, it performs an

important role of enabling corporate, entrepreneurs to raise resources for their

companies and business ventures through public issues. Transfer of resources from

those having idle resources (investors) to others who have a need for them (corporate)is most efficiently achieved through the securities market. Stated formally, securities

markets provide channels for reallocation of savings to investments and

entrepreneurship. Savings are linked to investments by a variety of intermediaries,

through a range of financial products, called „Securities‟.

Types of Securities Market

1. Primary Market

2. Secondary Market

1. Primary Market

The primary market is the financial market for the initial issue and placement of

securities. Unlike in the secondary market, no organized stock exchanges are

necessary. An organization that needs funds contacts their investment banker who

typically assembles a syndicate of securities dealers that will sell the new stock issue.

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It is the initial market for any item or service. It also signifies an initial market for a

new stock issue. The jargon also means a firm, trading market held in a security by a

trader who performs the activities of a specialist by being ready to execute orders in

that stock.Primary markets bring together buyers and sellers - either directly or through

intermediaries - by providing an arena in which sellers‟ investment propositions can

be

Priced, brought to the marketplace, and sold to buyers. In this context, the seller is

called the issuer and the price of what‟s sold is called the issue price.

Role of the ‘Primary Market’

The primary market provides the channel for sale of new securities. Primary market

provides opportunity to issuers of securities; Government as well as corporate, to raise

resources to meet their requirements of investment and/or discharge some obligation.

They may issue the securities at face value, or at a discount/premium and these

securities may take a variety of forms such as equity, debt etc. They may issue the

securities in domestic market and/or international market.

Face Value of a share/debenture

The nominal or stated amount (in Rs.) assigned to a security by the issuer. For shares,

it is the original cost of the stock shown on the certificate; for bonds, it is the amount

paid to the holder at maturity, Also known as par value or simply par. For an equityshare, the face value is usually a very small amount (Rs. 5, Rs. 10) and does not have

much bearing on the price of the share, which may quote higher in the market, at Rs.

100 or Rs. 1000 or any other price. For a debt security, face value is the amount

repaid to the investor when the bond matures (usually, Government securities and

corporate bonds have a face value of Rs. 100). The price at which the security trades

depends on the fluctuations in the interest rates in the economy.

Premium and Discount in a Security Market

Securities are generally issued in denominations of 5, 10 or 100. This is known as theFace Value or Par Value of the security as discussed earlier. When a security is sold

above its face value, it is said to be issued at a Premium and if it is sold at less than its

face value, then it is said to be issued at a Discount.

Issue of Shares

Need to issue shares to the public

Most companies are usually started privately by their promoter(s). However, the

promoters‟ capital and the bor rowings from banks and financial institutions may not

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be sufficient for setting up or running the business over a long term. So companies

invite the public to contribute towards the equity and issue shares to individual

investors. The way to invite share capital from the public is through a „Public Issue‟.

Simply stated, a public issue is an offer to the public to subscribe to the share capitalof a company. Once this is done, the company allots shares to the applicants as per the

prescribed rules and regulations laid down by SEBI.

Kinds of issues

Primarily, issues can be classified as a Public, Rights or Preferential issues (also

known as private placements). While public and rights issues involve a detailed

procedure, private placements or preferential issues are relatively simpler. The

classification of issues is illustrated below:

1. Initial Public Offering (IPO) is when an unlisted company makes either a fresh

issue of securities or an offer for sale of its existing securities or both for the first time

to the public. This paves way for listing and trading of the issuer‟s securities.

2. A follow on public offering (Further Issue) is when an already listed company

makes either a fresh issue of securities to the public or an offer for sale to the public,

through an offer document.

3. Rights Issue is when a listed company which proposes to issue fresh securities to

its existing shareholders as on a record date. The rights are normally offered in a

particular ratio to the number of securities held prior to the issue. This route is best

suited for companies who would like to raise capital without diluting stake of itsexisting shareholders.

4. A Preferential issue is an issue of shares or of convertible securities by listed

companies to a select group of persons under Section 81 of the Companies Act, 1956

which is neither a rights issue nor a public issue. This is a faster way for a company to

raise equity capital. The issuer company has to comply with the Companies Act and

the requirements contained in the Chapter pertaining to preferential allotment in SEBI

guidelines which inter-alia include pricing, disclosures in notice etc.

Issue price

The price at which a company's shares are offered initially in the primary market is

called as the Issue price. When they begin to be traded, the market price may be above

or below the issue price.

Market Capitalization

The market value of a quoted company, which is calculated by multiplying its current

share price (market price) by the number of shares in issue, is called as market

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capitalization. E.g. Company A has 120 million shares in issue. The current market

price is Rs. 100. The market capitalization of company A is Rs. 12000 million.

Price of an issueIndian primary market ushered in an era of free pricing in 1992. Following this, the

guidelines have provided that the issuer in consultation with Merchant Banker shall

decide the price. There is no price formula stipulated by SEBI. SEBI does not play

any role in price fixation. The company and merchant banker are however required to

give full disclosures of the parameters, which they had considered while deciding the

issue price. There are two types of issues, one where company and Lead Merchant

Banker fix a price (called fixed price) and other, where the company and the Lead

Manager (LM) stipulate a floor price or a price band and leave it to market forces to

determine the final price (price discovery through book building process).

Cut-Off Price

In a Book building issue, the issuer is required to indicate either the price band or a

floor price in the prospectus. The actual discovered issue price can be any price in the

price band or any price above the floor price. This issue price is called “Cut-Off

Price”. The issuer and lead manager decides this after considering the book and the

investors‟ appetite for the stock. Floor price is the minimum price at which bids can

be made.

Price Band in a book built IPO

The prospectus may contain either the floor price for the securities or a price band

within which the investors can bid. The spread between the floor and the cap of the

price band shall not be more than 20%. In other words, it means that the cap should

not be more than 120% of the floor price. The price band can have a revision and such

a revision in the price band shall be widely disseminated by informing the stock

exchanges, by issuing a press release and also indicating the change on the relevant

website and the terminals of the trading members participating in the book building

process. In case the price band is revised, the bidding period shall be extended for afurther period of three days, subject to the total bidding period not exceeding ten days.

The Price Band

It may be understood that the regulatory mechanism does not play a role in setting the

price for issue. It is up to the company to decide on the price or the price band, in

consultation with Merchant Bankers.

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Allotment in an IPO/offer for sale Timeframe for getting refund if shares not

allotted

As per SEBI guidelines, the Basis of Allotment should be completed with 15 days

from the issue close date. As soon as the basis of allotment is completed, within 2working days the details of credit to demat account / allotment advice and dispatch of

refund order needs to be completed. So an investor should know in about 15 day‟s

time from the closure of issue, whether shares are allotted to him or not. It would take

around 3 weeks after the closure of the book built issue

Role of a ‘Registrar’ to an issue

The Registrar finalizes the list of eligible allottees after deleting the invalid

applications and ensures that the corporate action for crediting of shares to the demat

accounts of the applicants is done and the dispatch of refund orders to those

applicable are sent. The Lead

Manager coordinates with the Registrar to ensure follow up so that the flow of

applications from collecting bank branches, processing of the applications and other

matters till the basis of allotment is finalized, dispatch security certificates and refund

orders completed and securities listed.

Listing of Securities

Listing means admission of securities of an issuer to trading privileges (dealings) on a

stock exchange through a formal agreement. The prime objective of admission to

dealings on the exchange is to provide liquidity and marketability to securities, as alsoto provide a mechanism for effective control and supervision of trading.

Listing Agreement

At the time of listing securities of a company on a stock exchange, the company is

required to enter into a listing agreement with the exchange. The listing agreement

specifies the terms and conditions of listing and the disclosures that shall be made by

a company on a continuous basis to the exchange.

Delisting of securities

The term delisting of securities‟ means permanent removal of securities of a listed

company from a stock exchange. As a consequence of delisting, the securities of that

company would no longer be traded at that stock exchange.

SEBI’s Role in an Issue

Any company making a public issue or a listed company making a rights issue of

value of more than Rs 50 lakh is required to file a draft offer document with SEBI for

its observations. The company can proceed further on the issue only after getting

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observations from SEBI. The validity period of SEBI‟s observation letter is three

months only i.e. the company has to open its issue within three months period.

2. Secondary Market Secondary market refers to a market where securities are traded after being initially

offered to the public in the primary market and/or listed on the Stock Exchange.

Majority of the trading is done in the secondary market. Secondary market comprises

of equity markets and the debt markets.

Role of the Secondary Market

For the general investor, the secondary market provides an efficient platform for

trading of his securities. For the management of the company, Secondary equity

markets serve as a monitoring and control conduit — by facilitating value-enhancing

control activities, enabling implementation of incentive-based management contracts,

and aggregating information (via price discovery) that guides management decisions.

Difference between the Primary Market and the Secondary Market

In the primary market, securities are offered to public for subscription for the purpose

of raising capital or fund. Secondary market is an equity-trading venue in which

already existing/pre-issued securities are traded among investors. Secondary market

could be either auction or dealer market. While stock exchange is the part of an

auction market, Over-the-Counter (OTC) is a part of the dealer market.

Products in the Secondary Markets

Following are the main financial products/instruments dealt in the Secondary market,

which may be divided broadly into Shares and Bonds:

Shares:

1. Equity Shares: An equity share, commonly referred to as ordinary share,

represents the form of fractional ownership in a business venture.

2. Rights Issue/ Rights Shares: The issue of new securities to existing shareholders

at a ratio to those already held, at a price. For e.g. a 2:3 rights issue at Rs. 125, would

entitle a shareholder to receive 2 shares for every 3 shares held at a price of Rs. 125per share.

Bonus Shares: Shares issued by the companies to their shareholders free of cost based

on the number of shares the shareholder owns.

3. Preference shares: Owners of these kinds of shares are entitled to a fixed dividend

or dividend calculated at a fixed rate to be paid regularly before dividend can be paid

in respect of equity share. They also enjoy priority over the equity shareholders in

payment of surplus. But in the event of liquidation, their claims rank below the claims

of the company‟s creditors, bondholders/debenture holders.

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4. Cumulative Preference Shares: A type of preference shares on which dividend

accumulates if remained unpaid. All arrears of preference dividend have to be paid

out before paying dividend on equity shares.

5. Cumulative Convertible Preference Shares: A type of preference shares wherethe dividend payable on the same accumulates, if not paid. After a specified date,

these shares will be converted into equity capital of the company.

Bond

Bond is a negotiable certificate evidencing indebtedness. It is normally unsecured. A

debt security is generally issued by a company, municipality or government agency. A

bond investor lends money to the issuer and in exchange, the issuer promises to repay

the loan

amount on a specified maturity date. The issuer usually pays the bondholder periodic

interest payments over the life of the loan. The various types of Bonds are as follows:

1. Zero Coupon Bond: Bond issued at a discount and repaid at a face value. No

periodic interest is paid. The difference between the issue price and redemption price

represents the return to the holder. The buyer of these bonds receives only one

payment, at the maturity of the bond.

2. Convertible Bond: A bond giving the investor the option to convert the bond into

equity at a fixed conversion price.

3. Treasury Bills: Short-term (up to one year) bearer discount security issued by

government as a means of financing their cash requirements.

Stock Market Development in India

An important early event in the development of the stock market in India was the

formation of the Native Share and Stock Brokers‟ Association at Bombay in 1875, the

precursor of the present-day Bombay Stock Exchange. This was followed by the

formation of associations /exchanges in Ahemdabad (1894), Calcutta (1908), and

Madras (1937). IN addition, a large number of ephemeral exchanges emerged mainly

in buoyant periods to recede into oblivion during depressing times subsequently.

In order to check such aberrations and promote a more orderly development of the

stock market, the central government introduced a legislation called the Securities

Contracts (Regulation) Act, 1956. Under this legislation, it is mandatory on the part of

stock exchanges to seek government recognition. There were 23 stock exchanges

recognized by the central Government. They are located at Ahemdabad, Bangalore,

Baroda, Bhubaneshwar, Calcutta, Chennai,(the Madras Stock Exchanges ), Cochin,

Coimbatore, Delhi, Guwahati, Hyderabad, Indore, Jaipur, Kanpur, Ludhiana,

Mangalore, Mumbai(the National Stock Exchange or NSE), Mumbai (The Stock

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Exchange), popularly called the Bombay Stock Exchange, Mumbai (OTC Exchange

of India), Mumbai (The Inter-connected Stock Exchange of India), Patna, Pune, and

Rajkot. Of course, the principle bourses are the National Stock Exchange and The

Bombay Stock Exchange, accounting for the bulk of the business done on the Indianstock market.

While the recognized stock exchanges have been accorded a privileged position, they

are subject to governmental supervision and control. The rules of a recognized stock

exchanges relating to the managerial powers of the governing body, admission,

suspension, expulsion, and re-admission of its members, appointment of authorized

representatives and clerks, so on and so forth have to be approved by the government.

These rules can be amended, varied or rescinded only with the prior approval of the

government.

Stock Exchange

Organized market place securities featured for the centralization of supply and

demand for the transaction of orders by member brokers for institutional and

individual investors.

A stock exchange is an organization of which the members are stockbrokers. A stock

exchange provides facilities for the trading of securities and other financial

instruments. Usually facilities are also provided for the issue and redemption of

securities as well as other capital events including the payment of income and

dividends.

BSE (Bombay Stock Exchange)

The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875

as "The Native Share and Stock Brokers Association". It is the oldest one in Asia,

even older than the Tokyo Stock Exchange, which was established in 1878. It is a

voluntary non-profit making Association of Persons (AOP) and is currently engaged

in the process of converting itself into demutualised and corporate entity. It has

evolved over the years into its present status as the premier Stock Exchange in the

country. It is the first Stock Exchange in the Country to have obtained permanent

recognition in 1956 from the Govt. of India under the Securities Contracts

(Regulation) Act, 1956.

The Exchange, while providing an efficient and transparent market for trading in

securities, debt and derivatives upholds the interests of the investors and ensures

redressal of their grievances whether against the companies or its own member

brokers. It also strives to educate and enlighten the investors by conducting investor

education program and making available to them necessary informative inputs.

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A Governing Board having 20 directors is the apex body, which decides the policies

and regulates the affairs of the Exchange. The Governing Board consists of 9 elected

directors, who are from the broking community (one third of them retire ever year byrotation), three SEBI nominees, six public representatives and an Executive Director

& Chief Executive Officer and a Chief Operating Officer.

NSE (National Stock Exchange)

NSE was incorporated in 1992 and was given recognition as a stock exchange in April

1993. It started operations in June 1994, with trading on the Wholesale Debt Market

Segment. Subsequently it launched the Capital Market Segment in November 1994 as

a trading platform for equities and the Futures and Options Segment in June 2000 for

various derivative instruments.

NSE has been able to take the stock market to the doorsteps of the investors. The

technology has been harnessed to deliver the services to the investors across the

country at the cheapest possible cost. It provides a nation-wide, screen-based,

automated trading system, with a high degree of transparency and equal access to

investors irrespective of geographical location. The high level of information

dissemination through on-line system has helped in integrating retail investors on a

nation-wide basis. The standards set by the exchange in terms of market practices,

Products, technology and service standards have become industry benchmarks and are

being replicated by other market participants. Within a very short span of time, NSE

has been able to achieve all the objectives for which it was set up. It has been playinga leading role as a change agent in transforming the Indian Capital Markets to its

present form. The Indian Capital Markets are a far cry from what they used to be a

decade ago in terms of market practices, infrastructure, technology, risk management,

clearing and settlement and investor service.

Role of a Stock Exchange in buying and selling shares

The stock exchanges in India, under the overall supervision of the regulatory

authority, the Securities and Exchange Board of India (SEBI), provide a trading

platform, where buyers and sellers can meet to transact in securities. The tradingplatform provided by NSE is an electronic one and there is no need for buyers and

sellers to meet at a physical location to trade. They can trade through the

computerized trading screens available with the NSE trading members or the Internet

based trading facility provided by the trading members of NSE.

Demutualisation of stock exchanges

Demutualisation refers to the legal structure of an exchange whereby the ownership,

the management and the trading rights at the exchange are segregated from one

another.

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Demutualised exchange different from a mutual exchange

In a mutual exchange, the three functions of ownership, management and trading are

concentrated into a single Group. Here, the broker members of the exchange are boththe owners and the traders on the exchange and they further manage the exchange as

well. This at times can lead to conflicts of interest in decision-making. A

demutualised exchange, on the other hand, has all these three functions clearly

segregated, i.e. the ownership, management and trading are in separate hands.

Currently, two stock exchanges in India, the National Stock Exchange (NSE) and

Over the Counter Exchange of India (OTCEI) are demutualised.

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Introduction of SEBI

The Government of India established the Securities and Exchange Board of India

(SEBI) the Regulatory body of stock markets in 1988. Within a short period of time,

SEBI became an autonomous body through the SEBI Act passed in 1992, with defined responsibilities that cover both development & regulation of the market.

Comprehensive regulatory measures introduced by SEBI ensured that end investors

benefited from safe and transparent dealings in securities and also safeguard the

investor interest.

Securities and Exchange Board of India (SEBI) head office at Mumbai it has

offices in Chennai, Calcutta and Delhi. It is the regulator of Securities markets in

India. SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial

and quasi-executive. It drafts rules in its legislative capacity, it conducts enquiries and

enforcement action in its executive function and it passes rulings and orders in its

judicial capacity. Though this makes it very powerful, there is an appeals process to

create accountability.

SEBI has had a mixed history in terms of its success as a regulator. Though it has

pushed systemic reforms aggressively and successively (e.g. the quick movement

towards making the markets electronic and paperless), it lacked the legal expertise, till

recently, needed to sustain prosecutions/enforcement actions. It has recently been

announced that it is going to the top law campuses to recruit talent and has found

reasonable success there.

The basic objectives of the Board were identified as:

To protect the interests of investors in securities

To promote the development of Securities Market

To regulate the Securities Market

To made rules and regulation, and restricts unfair trade policy‟s

Formulate duties and responsibility of stock brokers.

To regulate safe mode of operations in market place.

SEBI has contributed to the improvement of the Securities Market by introducing

Measures like capitalization requirements, margining and establishment of clearing

Corporations that reduced the risk of credit.

Today, the board continues on its two-fold mission of integrating the Securities

Market at The National level and also diversifying the trading products to increase

the number of Traders (including banks, financial institutions, insurance companies,

Mutual Funds, Primary dealers etc) transacting through the Exchanges. In this context

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the introduction of derivatives trading through Indian Stock Exchanges permitted by

SEBI in 2000 AD has been a real landmark.

Risks

What are the various types of the risks once starts trading?

Market Risk

This is the risk of investing in the stock market in general. It refers to a chance that a

securities value might decline. Although a particular company may be doing poorly,

the value of its stock can go up because the stock market value is collectively going

up conversely, a company may be doing very well, but the value of the stock might

drop because of negative factors inflation, rising interest rates, political instability etc

that are affecting the whole market. All stocks are affecting by market risk.

Industry RiskThis is risk that affects all companies in a certain industry. For e.g. Utility companies

are often viewed as relatively low in risk because the utility industry is stable andoperates in a predictable environment with relatively little change. In contrast, internet

and other technology industries are usually viewed as high in risk because theindustry is changing so quickly and unpredictably. The dotcom bubble burst in the 90s

affected the valuation of all stocks in that industrial stocks within an industry aresubject to industry risk.

Regulatory RiskVirtually every company is subject to some sort of regulation. It refers to the risk that

the government will pass new laws or implement new regulations, which will

dramatically affect a business.

Business Risk

These are the risks unique to an individual company. It refers to the uncertainty

regarding the organizations ability to perform business or provide service Products,

strategies, management, labor force, market share, etc., which are among the key

factors investors consider in equity market.

What are the instruments traded in the stock markets?

There are various types of instruments in the stock market. They include Shares,Mutual Funds, IPO's, Futures and Options.

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What is a Market Order?

A market order is an order to buy or sell a stock at the current market price. It signalsa broker to execute the order at the best price currently available. However, as market

prices keep changing; a market order cannot guarantee a specific price.

What is a Limit Order?To avoid buying or selling a stock at a price higher or lower than we wanted, we need

to place a limit order rather than a market order. A limit order is an order to buy or

sell a security at a specific price. We could use a limit order when we want to set the

price of the stock. In other words, we want to sell/buy particular scrip at a price other

than the Current Market Price. However, a limit order guarantees a price but cannot

guarantee execution of the trade, because the scrip might not reach the desired price

on that particular trading day owing to Market related factors.

What is a Stop Loss Order?

A stop loss order is a Normal order placed with a broker to sell a security when itreaches a certain predetermined price Trigger Price. Sometimes the market

movements defy our expectations. Such market reversals often result in loss bearingtransactions. The stop loss trigger price is our defense mechanism- an amount at

which we will be able to sustain us against such unanticipated market movements.Our stop loss instruction is an order to sell when the price of contracts reaches a pre-

determined level - the trigger price. Naturally, this price cannot be more than the priceof the stock we are trading.

For e.g. If we bought a stock at Rs 10, we place a stop loss order with our broker to

sell it, if it reaches Rs 8. This helps us to prevent further loss, in the eventuality thatthe price of the stock might dip even further. Thus, it helps limit our loss or protect

unrealized profits, whichever the case. Good-till-canceled (GTC) or Day Order Or

Normal Orders Day orders are orders given to our broker that hold true only during

the period of the trading day for which the order have been given. If the order has not

been executed on that day, it will not be passed on to the next trading day. Thus these

are orders that are only "good until it is canceled" or "good for the day." For e.g. we

place a stop loss order with our broker to sell a stock, if its price reaches to level X.

Now, if it does not reach limit X, our broker will not sell the stock. However, the stop

loss order given to our broker will not hold true for the next day. For, even if the stock

reaches level X on Day 2, he will not execute the trade till we instruct him to do so

again.

What are advances and declines?

Advances and declines give us an indication of how the overall market has performed.We get a good overview of the general market direction. As the name suggest '

advances' will inform us how the market has progressed. 'Declines' signal if themarket has not performed as per expectations. The Advance- Decline ratio is a

technical Analysis tool that indicates market movement. Advance decline ratio iscalculated using the formula:

[Number of stocks that advanced/number of stocks that declined]

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Generally, it is seen that in Bullish markets the number of stocks that advance is more

than the ones that declined and the converse can be said to hold true in a bearishmarket. The breadth of market indicator is used to gauge the number of stocks

advancing and declining for the day. Remains unchanged' is a term used if the market

scenario shows no advancement or decline compared to the earlier day advances anddeclines are calculated from the previous days closing results. However, a market thatis significantly on one side either in terms of advances or declines may have a hard

time reversing out of that direction the next day.

Sharekhan Ltd. is one of the leading retail stock broking house of SSKI Group which

is running successfully since 1922 in the country. It is the retail broking arm of the

Mumbai-based SSKI Group, which has over eight decades of experience in the stock

broking business. Sharekhan offers its customers a wide range of equity related

service including trade execution on BSE, NSE, Derivatives, depository services,

online trading, investment advice etc.

The firm‟s online trading and investment site - www.sharekhan.com - was launched

on Feb 8, 2000. The site gives access to superior content and transaction facility to

retail customers across the country. Known for its jargon-free, investor friendlylanguage and high quality research, the site has a registered base of over one lakh

customers. The content-rich and research oriented portal has stood out among its

contemporaries because of its steadfast dedication to offering customers best-of-breed

technology and superior market information. The objective has been to let customers

make informed decisions and to simplify the process of investing in stocks.

Share khan‟s ground network includes over 1288 centers in 325 cities in India

which provide a host of trading related services. Sharekhan has always believed in

investing in technology to build its business. The company has used some of the best-

known names in the IT industry, like Sun Microsystems, Oracle, Microsoft,Cambridge Technologies, Nexgenix, Vignette, Verisign Financial Technologies India

Ltd, Spider Software Pvt. Ltd. to build its trading engine and content.

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Vision, Mission & Objectives

Vision: “

To be the best retail broking brand in the Indian equities market”

Mission:

“To educate and empower the individual investor to make better investment

decisions through quality advice and superior service”

Objectives:

To ensure satisfaction through teamwork and professional management

To provide good quality of services on a continuous basis to the satisfaction of

clients.

To extend effective guidance to brokers, to clearing house Corporation,

companies and investor in E-Stock Trading.

To eliminate paper work and bring in front of electronic stock market in India.

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Reason to Choose Sharekhan Limited

Experience

SSKI has more than eight decades of trust and credibility in the Indian stock market.

In the Asia Money broker's poll held recently, SSKI won the for 2004' award. Eversince it launched Sharekhan as its retail broking division in February 2000, it has been

providing institutional individual investors.

Technology

With its online trading account one can buy and sell shares in an instant from any PC

with an internet connection. One can get access to its powerful online trading tools

that will help him take complete control over his investment in shares.

Accessibility

Sharekhan provides ADVICE, EDUCATION, TOOLS AND EXE CUTION services

for investors. These services are accessible through its centers across the country over

the internet (through the website www.sharekhan.com) as well as over the Voice

Tool.

Knowledge

In a business where the right information at the right time can translate into direct

profits, one can get access to a wide range of information on Sharekhan limited‟s

content-rich portal. One can also get a useful set of knowledge-based tools that will

empower him to take informed decisions.

Convenience

One can call its Dial-N-Trade number to get in vestment advice and execute his

transactions. Sharekhan ltd. has a dedicated call -centre to provide this service via aToll Free Number 1800-22-7500 & 1800-22-7050 from anywhere in India.

Customer ServiceSharek han limited‟s customer service team will assist one for any help that one may

require relating to transactions, billing, demat and other queries. Its customer servicecan be contacted via a toll-free number, email or live chat on www.sharekhan.com.

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Investment AdviceSharekhan has dedicated research teams of more than 30 people for fundamental and

technical researches. Its analysts constantly track the pulse of the market and providetimely investment advice to its clients in the form of daily research emails, online

chat, printed reports and SMS on their mobile phone.

Products and Services of Sharekhan Limited

Online BSE and NSE executions (through BOLT & NEAT terminals)

PMS Service (Portfolio Management Service)

Free access to investment advice from Sharekhan's Research team

Sharekhan Value Line (a monthly publication with reviews of

Recommendations, stocks to watch out for etc)

Daily research reports and market review (High Noon & Eagle Eye)

Pre-market Report

Daily trading calls based on Technical Analysis

Cool trading products (Daring Derivatives and Market Strategy)

Personalized Advice

Live Market Information

Depository Services: Demat Transactions.

Derivatives Trading (Futures and Options)

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Commodities Trading

IPO‟s & Mutual Funds Distribution

Internet-based Online Trading: Speed Trade

Introduction of Fundamental analysis & Technical Analysis

Equity Analysis is the systematic study of the performance of companies in

stock market with help of fundamental analysis and technical analysis. Equity

analysis consists of fundamental analysis & technical analysis. While decision in

investment of shares should be based on actual movement of share prices measured

more in money & percentage term & nothing else.

In equity analysis, calculations are based on FACTS & not on HOPE. The subject of equity analysis is the attempt to determine future share price movement with the help

of Ratio Analysis & Study of Graph. Equity analysis does not discuss how to buy &

sell shares, but does discuss the methods, which enables the investor to arriving at

buying & selling decision.

The Technical Approach to investment is essentially a reflection of the idea that

prices move in a trend that is determined by the changing attitude of investor‟s toward

a variety of economic, monetary, political and psychological forces. The art of

technical analysis, for it is an art, is to identify a trend reversal at a relatively early

stage and ride on that trend until the weight of the evidence shows or proves the trend

has reversed.

Objectives:

1. To study the importance of Technical Analysis.

2. To study the different tools of Fundamental & Technical Analysis

3. To study the factors that influence investment decision

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Fundamental Analysis

Fundamental analysis is the examination of the underlying forces that affect the well

being of the economy, industry groups, and companies. As with most analysis, thegoal is to derive a forecast and profit from future price movements. At the company

level, fundamental analysis may involve examination of financial data, management,

business concept and competition. At the industry level, there might be an

examination of supply and demand forces for the products offered. For the national

economy, fundamental analysis might focus on economic data to assess the present

and future growth of the economy. To forecast future stock prices, fundamental

analysis combines economic, industry, and company analysis to derive a stock's

current fair value and forecast future value. If fair value is not equal to the current

stock price, fundamental analysts believe that the stock is either over or under valued

and the market price will ultimately gravitate towards fair value. Fundamentalists do

not need the advice of the random walkers and believe that markets are weak-form

efficient. By believing that prices do not accurately reflect all available information,

fundamental analysts look to capitalize on perceived price discrepancies.

The massive amount of numbers in a company's financial statement can be

bewildering and intimidating to many investors. On the other hand, if anyone knows

how to read them, the financial statements are a gold mine of information

Financial statement analysis is the biggest part of fundamental analysis. Also knownas quantitative analysis, it involves looking at historical performance data to estimate

the future performance of stocks. Followers of quantitative analysis want as much

data as they can find on revenue, expenses, assets, liabilities and all the other financial

aspects of a company. Fundamental analysts look at this information to

gain insight on a company's future performance. This doesn't mean that they ignore

the company's stock price; they just avoid focusing on it exclusively

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Fundamental Analysis Tools:-

These are the most popular tools of fundamental analysis. They focus on earnings,growth, and value in the market.

1. Earnings per Share EPS2. Price to Earnings Ratio P/E

3. Projected Earnings Growth PEG4. Price to Book P/B

5. Dividend Payment Ratio6. Dividend Yield

7. Book Value

1. Earnings per share EPS:

EPS denotes Earnings per Share. It is a ratio that denotes the net profit or loss credited

to the share holders for every share held. It is a widely used ratio that plays a veryimportant role in valuation of the shares of the company. It is useful to use earnings

per share (EPS) for as a comparison tool. One calculate earnings per share by taking

the net earnings and divide by the outstanding shares.

EPS = Net Earnings / Outstanding Shares

2. Price to Earnings Ratio P/E:

The P/E looks at the relationship between the stock price and the company s earnings.

The P/E is the most popular metric of stock analysis. The P/E ratio is calculated by

taking the share price and dividing it by the company s EPS.

P/E = Stock Price / EPS

The P/E gives an idea of what the market is willing to pay for the company ‟s

earnings. The higher the P/E the more the market is willing to pay for the company‟s

earnings. Conversely, a low P/E may indicate a vote of no confidence.

3. Projected Earnings Growth PEG:

This ratio is used to look at future earnings growth is called the PEG ratio. Calculate

the PEG by taking the P/E and dividing it by the projected growth in earnings.

PEG = P/E / (projected growth in earnings)

For example, a stock with a P/E of 30 and projected earning growth next year of 15%would have a PEG of 2 (30 / 15 = 2). It shows a relationship that the lower the number

the less we pay for each unit of future earnings growth. So even a stock with high P/E,but high projected earnings growth may be good value.

Looking at the opposite situation; a low P/E stock with low or no projected earningsgrowth, we see that what looks like a value may not work out that way. For example,

a stock with a P/E of 8 and flat earnings growth equals a PEG of 8. This could prove

to be an expensive investment.

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A few important things to remember about PEG: It is about year-to-year earningsgrowth it relies on projections, which may not always be accurate.

4. Price to Book P/B :This measurement looks at the value the market places on the book value of thecompany. Calculate the P/B by taking the current price per share and dividing by the

book value per share.

P/B = Share Price / Book Value per Share

Like the P/E, the lower the P/B, the better the value. Value investors would use a low

P/B is stock screens, for instance, to identify potential candidates.

5. Dividend Payment Ratio:

The DPR measures what a company s pays out to investors in the form of dividends. Calculate the DPR by dividing the annual dividends per share by the

Earnings per Share.

DPR = Dividends per Share / EPS

For example, if a company paid out Rs.1 per share in annual dividends and had Rs.3In EPS, the DPR would be 33%. (1 / 3 = 33%) The real question is whether 33% is

good or bad and that is subject to interpretation. Growing companies will typicallyretain more profits to fund growth and pay lower or no dividends.

Companies that pay higher dividends may be in mature industries where there is little

room for growth and paying higher dividends is the best use of profits.

6. Dividend Yield:This measurement tells us what percentage return a company pays out to shareholders

in the form of dividends. Older, well-established companies tend to payment a higher

percentage than do younger companies and their dividend history can be more

consistent. Calculate the Dividend Yield by taking the annual dividend per share and

divide by the stock s price.

Dividend Yield = annual dividend per share / stock's price per share For example, if a company s annual dividend is Rs.1.50 and the stock trades at Rs. 25,the Dividend Yield is 6%. (1.50 / 25 = 0.06)

7. Book Value:Another way to determine a company s value is to go to the balance statement and

look at the Book Value. The Book Value is simply the company s assets minus itsliabilities.

Book Value = Assets - Liabilities

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In other words, if anyone wanted to close the doors, how much would be left after

settling all the outstanding obligations and sold off all the assets. A company that is aviable growing business will always be worth more than its book value for its ability

to generate earnings and growth.

Book value appeals more to value investors who look at the relationship to the stock'sprice by using the Price to Book ratio.

To compare companies, one should convert to book value per share, which is simply

the book value divided by outstanding shares.

Strength of Fundamental Analysis

Long-Term Trends - Fundamental analysis is good for long-term investments

based on long-term trends, very long-term. The ability to identify and predictlong-term economic, demographic, technological or consumer trends can

benefit patient investors who pick the right industry groups or companies

Value Spotting – Sound fundamental analysis will help identify companies

that represent a good value. Some of the most legendary investors think long-

term and value. Fundamental analysis can help uncover companies with

valuable assets, a strong balance sheet, stable earnings, and staying power.

Business Acumen - One of the most obvious, but less tangible, rewards of

fundamental analysis is the development of a thorough understanding of thebusiness. After such painstaking research and analysis, an investor will be

familiar with the key revenue and profit drivers behind a company. Earnings

and earnings expectations can be potent drivers of equity prices. Even some

technicians will agree to that. A good understanding can help investors avoid

companies that are prone to shortfalls and identify those that continue to

deliver. In addition to understanding the business, fundamental analysis allows

investors to develop an understanding of the key value drivers and companies

within an industry. A stock's price is heavily influenced by its industry group.

By studying these groups, investors can better position themselves to identifyopportunities that are high-risk (tech), low-risk (utilities), growth oriented

(computer), value driven (oil), non-cyclical (consumer staples), cyclical

(transportation) or income-oriented (high yield).

Knowing Who's Who - Stocks move as a group. By understanding a

company's business, investors can better position themselves to categorize

stocks within their relevant industry group. Business can change rapidly and

with it the revenue mix of a company. This happened too many of the pure

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Internet retailers, which were not really Internet companies, but plain retailers.

Knowing a company's business and being able to place it in a group can make

a huge difference in relative valuations.

Weaknesses of Fundamental Analysis

Time Constraints - Fundamental analysis may offer excellent insights, but it

can be extraordinarily time-consuming. Time-consuming models often

produce valuations that are contradictory to the current price prevailing on

Wall Street. When this happens, the analyst basically claims that the whole

street has got it wrong. This is not to say that there are not misunderstood

companies out there, but it is quite brash to imply that the market price, and

hence Wall Street, is wrong.

Industry/Company Specific - Valuation techniques vary depending on the

industry group and specifics of each company. For this reason, a different

technique and model is required for different industries and different

companies. This can get quite time-consuming, which can limit the amount of

research that can be performed.

Subjectivity - Fair value is based on assumptions. Any changes to growth or

multiplier assumptions can greatly alter the ultimate valuation. Fundamental

analysts are generally aware of this and use sensitivity analysis to present a

base-case valuation, a best-case valuation and a worst-case valuation.

However, evenon a worst-case valuation, most models are almost always

bullish, the only question is how much so.

Analyst Bias - The majority of the information that goes into the analysis

comes from the company itself. Companies employ investor relations

managers specifically to handle the analyst community and release

information. As Mark

Twain said, "there are lies, damn lies, and statistics." When it comes to massaging the

data or spinning the announcement, CFOs and investor relations managers are

professionals. Only buy-side analysts tend to venture past the company statistics.

Buy-side analysts work for mutual funds and money managers. They read the reports

written by the sell-side analysts who work for the big brokers. The brokers are also

involved in underwriting and investment banking for the companies. Even though

there are restrictions in place to prevent a conflict of interest, brokers have an ongoing

relationship with the company under analysis. When reading these reports, it is

important to take into consideration any biases a sell-side analyst may have. The buy-

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side analyst, on the other hand, is analyzing the company purely from an investment

standpoint for a portfolio manager. If there is a relationship with the company, it is

usually on different terms. In some cases this may be as a large shareholder.

Definition Of Fair Value - When market valuations extend beyond historical

norms, there is pressure to adjust growth and multiplier assumptions to

compensate. If Wall Street values a stock at 50 times earnings and the current

assumption is 30 times, the analyst would be pressured to revise this

assumption higher. There is an old Wall Street adage: the value of any asset

(stock) is only what someone is willing to pay for it (current price). Just as

stock prices fluctuate, so too do growth and multiplier assumptions. Are we to

believe Wall Street and the stock price or the analyst and market assumptions?

It used to be that free cash flow or earnings were used with a multiplier to

arrive at a fair value. In 1999, the S&P 500 typically sold for 28 time‟s freecash flow. However, because so many companies were and are losing money,

it has become popular to value a business as a multiple of its revenues. This

would seem to be OK, except that the multiple was higher than the PE of

many stocks! Some companies were considered bargains at 30 times revenues

Conceptual Framework on Technical Analysis

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. Technicians or chartists are only

interested in the price movements in the market.

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.

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.


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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 astock 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:

Market discounts everything.

Price moves in trends

History tends to repeats itself.

Technical Analysis

History

The premises of technical analysis were derived from empirical observations of

financial markets over hundreds of years. Perhaps the oldest branch of technical

analysis is the use of candlestick techniques by Japanese traders at least as early as the

18th century, and still very popular today.

Dow Theory, a theory based on the collected writings of Dow Jones co-founder and

Editor Charles Dow, inspired the increasingly widespread use and development of

technical analysis from the end of the 19th century. Modern technical analysis

considers Dow Theory its cornerstone.

New tools and theories have been produced and existing tools have been enhanced at

a rapid rate in recent decades, with an increasing emphasis on computer-assisted

techniques

Technical Analysis is the forecasting of future financial price movements based on an

examination of past price movements. Like weather forecasting, technical analysisdoes not result in absolute predictions about the future. Technical analysis help the

investors anticipate what is "likely" to happen to prices over time. Technical analysis

uses a wide variety of charts that show price over time. Those that use 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.

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Technical analysis is not concerned with why a price is moving (e.g. poor earnings,

difficult business environment, poor management, or other fundamentals) but rather

whether it is moving in a particular direction or in a particular chart pattern. Technical

analysts believe that profits can be made by "trend following." In other words if aparticular stock price is steadily rising (trending upward) then a technical analyst will

look for opportunities to buy this stock. Until the technical analyst is convinced this

uptrend has reversed or ended, all else equal, he will continue to own this security.

Additionally, technical analysts look for various price patterns to form on a price chart

and will take positions in anticipation of the expected move following that pattern.

The various tools of technical analysis assist the technician in determining when

trends have formed, ended, etc. and when particular patterns are unfolding. The world

of technical analysis is huge today. There are literally hundreds of different patterns

and indicators that investors claim to have success with.

General Steps to Technical Evaluation

Many technicians employ a top-down approach that begins with broad-based macro

analysis. The larger parts are then broken down to base the final step on a more

focused/micro perspective. Such an analysis might involve three steps:

Broad market analysis through the major indices such as the S&P 500, DowIndustrials, NASDAQ and NYSE Composite.

Sector analysis to identify the strongest and weakest groups within the broader

market.

Individual stock analysis to identify the strongest and weakest stocks within

select groups.

The beauty of technical analysis lies in its versatility. Because the principles of

technical analysis are universally applicable, each of the analysis steps above can be

performed using the same theoretical background. We don't need an economicsdegree to analyze a market index chart. Charts are charts; it does not matter if the time

frame is 2 days or 2 years. It does not matter if it is a stock, market index or

commodity. The technical principles of support, resistance, trend, trading range and

other aspects can be applied to any chart. While this may sound easy, technical

analysis is by no means easy. Success requires serious study, dedication and an open

mind.

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Basis of Technical Analysis

At the turn of the century, the Dow Theory laid the foundations for what was later to

become modern technical analysis. Dow Theory was not presented as one completeamalgamation, but rather pieced together from the writings of Charles Dow over

several years. Of the many theorems put forth by Dow, three stand out:

Price Discounts Everything

Price Movements Are Not Totally Random

What Is More Important than

Price Discounts Everything - This theorem is similar to the strong and semi-strong

forms of market efficiency. Technical analysts believe that the current price fullyreflects all information. Because all information is already reflected in the price, it

represents the fair value, and should form the basis for analysis. After all, the market

price reflects the sum knowledge of all participants, including traders, investors,

portfolio managers, buy-side analysts, sell-side analysts, market strategist, technical

analysts, fundamental analysts and many others. It would be folly to disagree with the

price set by such an impressive array of people with impeccable credentials.

Technical analysis utilizes the information captured by the price to interpret what the

market is saying with the purpose of forming a view on the future.

Prices Movements Are Not Totally Random - Most technicians agree that prices

trend. However, most technicians also acknowledge that there are periods when prices

do not trend. If prices were always random, it would be extremely difficult to make

money using technical analysis.

A technician believes that it is possible to identify a trend, invest or trade based on the

trend and make money as the trend unfolds. Because technical analysis can be applied

to many different time frames, it is possible to spot both short-term and long-term

trends.

“What" Is more important Than "Why" - A technical analyst knows the price of

everything, but the value of nothing". Technicians, as technical analysts are called, are

only concerned with two things:

1. What is the current price?

2. What is the history of the price movement?

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The price is the end result of the battle between the forces of supply and demand for

the company's stock. The objective of analysis is to forecast the direction of the future

price. By focusing on price and only price, technical analysis represents a direct

approach. Fundamentalists are concerned with why the price is what it is. Fortechnicians, the why portion of the equation is too broad and many times the

fundamental reasons given are highly suspect. Technicians believe it is best to

concentrate on what and never mind why. Why did the price go up? It is simple, more

buyers (demand) than sellers (supply). After all, the value of any asset is only what

someone is willing to pay for it. Who needs to know why?

Strength of Technical Analysis

Focus on Price - If the objective is to predict the future price, then it makes sense to

focus on price movements. Price movements usually precede fundamental

developments. By focusing on price action, technicians are automatically focusing on

the future. The market is thought of as a leading indicator and generally leads the

economy by 6 to 9 months. To keep pace with the market, it makes sense to look

directly at the price movements. More often than not, change is a subtle beast. Even

though the market is prone to sudden knee-jerk reactions, hints usually develop before

significant moves. A technician will refer to periods of accumulation as evidence of

an impending advance and periods of distribution as evidence of an impending

decline.

Supply, Demand And Price Action - Many technicians use the open, high, low and

close when analyzing the price action of a security. There is information to be gleaned

from each bit of information. Separately, these will not be able to tell much. However,

taken together, the open, high, low and close reflect forces of supply and demand.

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The annotated example above shows a stock that opened with a gap up. Before the

open, the number of buy orders exceeded the number of sell orders and the price was

raised to attract more sellers. Demand was brisk from the start. The intraday high

reflects the strength of demand (buyers). The intraday low reflects the availability of

supply (sellers). The close represents the final price agreed upon by the buyers and thesellers. In this case, the close is well below the high and much closer to the low. This

tells us that even though demand (buyers) was strong during the day, supply (sellers)

ultimately prevailed and forced the price back down. Even after this selling pressure,

the close remained above the open. By looking at price action over an extended period

of time, we can see the battle between supply and demand unfold. In its most basic

form, higher prices reflect increased demand and lower prices reflect increased

supply.

Support / Resistance - Simple chart analysis can help identify support and resistance

levels. These are usually marked by periods of congestion (trading range) where the

prices move within a confined range for an extended period, telling us that the forces

of supply and demand are deadlocked. When prices move out of the trading range, it

signals that either supply or demand has started to get the upper hand. If prices move

above the upper band of the trading range, then demand is winning. If prices move

below the lower band, then supply is winning.

Pictorial Price History - Even if we are a tried and true fundamental analyst, a price

chart can offer plenty of valuable information. The price chart is an easy to read

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historical account of a security's price movement over a period of time. Charts are

much easier to read than a table of numbers. On most stock charts, volume bars are

displayed at the bottom. With this historical picture, it is easy to identify the

following:

Reactions prior to and after important events.

Past and present volatility.

Historical volume or trading levels.

Relative strength of a stock versus the overall market

Assist With Entry Point - Technical analysis can help with timing a proper entry

point. Some analysts use fundamental analysis to decide what to buy and technical

analysis to decide when to buy. It is no secret that timing can play an important role inperformance. Technical analysis can help spot demand (support) and supply

(resistance) levels as well as breakouts. Simply waiting for a breakout above

resistance or buying near support levels can improve returns.

It is also important to know a stock's price history. If a stock we thought was great for

the last 2 years has traded flat for those two years, it would appear that Wall Street has

a different opinion. If a stock has already advanced significantly, it may be prudent to

wait for a pullback. Or, if the stock is trending lower, it might pay to wait for buying

interest and a trend reversal

Weakness of Technical Analysis

Analyst Bias - Just as with fundamental analysis, technical analysis is subjective and

personal biases can be reflected in the analysis. It is important to be aware of these

biases when analyzing a chart. If the analyst is a perpetual bull, then a bullish bias will

overshadow the analysis. On the other hand, if the analyst is a disgruntled eternal

bear, then the analysis will probably have a bearish tilt.

Open To Interpretation - Furthering the bias argument is the fact that technical

analysis is open to interpretation. Even though there are standards, many times twotechnicians will look at the same chart and paint two different scenarios or see

different patterns. Both will be able to come up with logical support and resistance

levels as well as key breaks to justify their position. While this can be frustrating, it

should be pointed out that technical analysis is more like an art than a science,

somewhat like economics. Is the cup half-empty or half-full? It is in the eye of the

beholder.

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Too Late - Technical analysis has been criticized for being too late. By the time the

trend is identified, a substantial portion of the move has already taken place. After

such a large move, the reward to risk ratio is not great. Lateness is a particular

criticism of Dow Theory.

Always Another Level - Even after a new trend has been identified, there is always

another "important" level close at hand. Technicians have been accused of sitting on

the fence and never taking an unqualified stance. Even if they are bullish, there is

always some indicator or some level that will qualify their opinion.

Trader’s Remorse - Not all technical signals and patterns work. When we begin to

study technical analysis, we will come across an array of patterns and indicators with

rules to match. For instance: A sell signal is given when the neckline of a head and

shoulders pattern is broken. Even though this is a rule, it is not steadfast and can besubject to other factors such as volume and momentum. In that same vein, what works

for one particular stock may not work for another. A 50-day moving average may

work great to identify

support and resistance for IBM, but a 70-day moving average may work better for

TCS. Even though many principles of technical analysis are universal, each security

will have its own idiosyncrasies.

Tools of Technical Analysis

Line charts - A style of charts that is created by connecting a series of data

points together with a line. This is the most basic type of charts used in

finance and connecting a series of past prices together with a line generally creates

it.



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Bar chart - A style of chart used by some technical analysts, on whom asillustrated below, the top of the vertical line indicates the highest price a security

traded at during the day, and the bottom represents the lowest price. The closing

price is displayed on the right side of the bar, and the opening price is shown on the

left side of the bar. A single bar like the one below represents one day of trading.

These are the most popular type of chart used in technical analysis. The visual

representation of price activity over a given period of time is used to spot trends

and patterns.

Candlestick - Candlestick charting can be traced back to the 1700's as a tool

used for rice trading. One of the great rice traders of the 1800's, Homma is widely

credited for developing the candlestick charting basics used today. In the west,

Candlestick Charting has grown in popularity and use, thanks to the efforts of Steve

Nisson and Greg Morris. Candlestick charts are visually appealing and can be a

valuable tool in the technician‟s toolbox as it gives insight into current investor

sentiment, allowing for the determination of short term tops and bottoms. Originating

in Japan over 300 years ago, candlestick charts have become quite popular in recent

years. For a candlestick chart, the open, high, low and close are all required. A daily

candlestick is based on the open price, the intraday high and low, and the close. A

weekly candlestick is based on Monday's open, the weekly high-low range and

Friday's close. Candlestick is based on the open price, the intraday high and low, and

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the close. A weekly candlestick is based on Monday's open, the weekly high-low

range and Friday's close.

White (clear) candlesticks form when the close is higher than the open and black

(solid) candlesticks form when the close is lower than the open. The white and black

portion formed from the open and close is called the body (white body or black body).

The lines above and below are called shadows and represent the high and low.

The candle is comprised of two parts, the body and the shadows. The body

encompasses the open and closing price for the period. The candle body is black if the

security closed below the open, and white if the close was higher than the open for the

period. The candlestick shadow encompasses the intra-period high and low. Long

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shadows show that the trading extended well beyond the opening and/or closing

price, while short shadows, show that trading was confined closely to the open and/or

closing price.

Long, and Short Bodies; Marubozo and Spinning Tops

A long body is a candlestick with a very long body when compared with other recent

candles. White bodies show intense buying pressure, where as black bodies show

intense selling pressures. Long white candles are generally bullish, but are also found

at blowout tops, so they must be interpreted with surrounding candles. Similar long

black candles are generally bearish, but are also found at capitulation bottoms. Long

bodies with no upper and lower shadows are called Marubozo's. Marubozo's are more

powerful than long candles as they show a steady advance (or decline if black)

throughout the trading period. A short candle is the opposite of a long candle andusually implies consolidation, as the stock traded in a narrow range during the period.

Short candles with long upper and lower shadows are called spinning tops, and are

potential reversal signs, as it shows that despite trading in a wide range, the security

closed close to the open. A spinning top becomes a doji as the closing price

approaches the open price.

1. Long and Short Bodies - Long white candlesticks show strong buying

pressure. The longer the white candlestick is, the further the close is above the open.

This indicates that prices advanced significantly from open to close and buyers wereaggressive. While long white candlesticks are generally bullish, much depends on

their position within the broader technical picture. After extended declines, long white

candlesticks can mark a potential turning point or support level. If buying gets too

aggressive after a long advance, it can lead to excessive bullishness. Long black

candlesticks show strong selling pressure. The longer the black candlestick is, the

further the close is below the open. This indicates that prices declined significantly

from the open and sellers were aggressive.

http://stockcharts.com/education/GlossaryS.html#Support

http://stockcharts.com/education/GlossaryS.html#Support

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After a long advance, a long black candlestick can foreshadow a turning point or mark

a future resistance level. After a long decline a long black candlestick can indicate

panic or capitulation.

2. Marubozu - Even more potent long candlesticks are the Marubozu brothers,

Black and White. Marubozu do not have upper or lower shadows and the high and

low are represented by the open or close. A White Marubozu forms when the open

equals the low and the close equals the high. Thisindicates that buyers controlled the price action

from the first trade to the last trade. Black

Marubozu form when the open equals the high and

he close equals the low. This indicates that sellers

controlled the price action from the first trade to the

last trade.

3. Long versus Short Shadows

The upper and lower shadows on candlesticks can

provide valuable information about the trading session. Upper shadows

represent the session high and lower shadows the session low. Candlesticks with short

shadows indicate that most of the trading action was confined near the open and close.

Candlestick with long shadows show that traded extended well past the open and

close.

http://stockcharts.com/education/GlossaryR.html#Resistance

http://stockcharts.com/education/GlossaryR.html#Resistance

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Candlesticks with a long upper shadow and short lower shadow indicate that buyers

dominated during the session, and bid prices higher. However, sellers later forcedprices down from their highs, and the weak close created a long upper shadow.

Conversely, candlesticks with long lower shadows and short upper shadows indicate

that sellers dominated during the session and drove prices lower. However, buyers

later resurfaced to bid prices higher by the end of the session and the strong close

created a long lower shadow.

4. Spinning Tops

Candlesticks with a long upper shadow, long lower shadow and small real body is

called spinning tops. One long shadow represents a reversal of sorts; spinning tops

represent indecision. The small real body (whether hollow or filled) shows little

movement from open to close and the shadows indicate that both bulls and bears were

active during the session. Even though the session opened and closed with little

change, prices moved significantly higher and lower in the meantime. Neither buyers

nor sellers could gain the upper hand and the result was a standoff. After a long

advance or long white candlestick, a spinning top indicates weakness among the bulls

and a potential change or interruption in trend. After a long decline or long black

candlestick, a spinning top indicates weakness among the bears and a potential change

or interruption in trend.

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Doji-:

Doji's are powerful reversal indicating candlesticks and are formed when the security

opens and closes at the same level, implying indecision in the stock price. Depending

on the location and length of the shadows, doji's can be categorized into the following

formations: doji, long legged-doji, butterfly doji, gravestone doji, 4 price doji, etc.

Doji's become more significant when seen after an extended rally of long bodied

candles (bullish or bearish) and are confirmed with an engulfing. (A long candlestick

formed over the next period which engulfs the doji body).

1. A long legged-doji is formed when the stock opens at a level, trades in a

considerable trading range only to close at the same level as it opened. Long

legged-doji's become more powerful when proceeded by small candles, as a

sudden burst of volatility in a relative unvolatile stock; can imply a trend

change is coming.

2.

Dragonfly Doji's are doji's that opened at the high of a session, had aconsiderable interperiod decline, then find support to rally back to close at the

same level as the open. Dragonfly Doji's are often seen after a moderate

decline, and are bottom reversal indicators when confirmed with a bullish

engulfing.

3. Gravestone Doji's are the opposite of the Dragonfly Doji and are top reversal

indicators when confirmed with bearish engulfing. As the name implies,

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gravestone doji's look like a gravestone, and could signal impending doom for

a stock.

4. Price doji's occur when the stock opens trades and closes at virtually the same

level for the period. These are very rare, except with thinly traded securities.

Engulfings

An engulfing occurs when the candle body engulfs the previous candles body. White

engulfing candles are bullish engulfings, where as black engulfing candles are bearish

engulfings. Bullish engulfings are commonly found at short term bottoms, where as

bearish engulfings at tops. Many candlesticks, such as dojis, hammers, hanging mans

need confirmation of a trend change with an engulfing (bullish engulfing at bottoms,

bearish engulfings at tops).

Hammers/ Hanging Man

Hammers and hanging man's are short body candles with little or no upper shadow,

and a lower shadow at least twice as long as the candle body. Hammers are formed

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after declines, and hanging man's after advances. When confirmed they become

powerful reversal signals, especially the hammer. The expression "hammers out a

bottom" refers to when after the open, the downtrend in a stock continues, until at

some point, enough buying interest is generated, to bring prices close to where theyopen. Confirmation comes from a bullish engulfing, showing the trader that the up

trend is established. The color of the hanging man/hammer is unimportant, but some

consider white hammers and black hanging man's more potent reversal signals.

Gaps

A gap occurs when a candlestick body doesn't fall within the range of the previous

candlestick body, a more loosely interpreted definition of a gap, requires no overlap

between the shadows, making it obvious on a bar chart as well. We will often hear

"All Gaps Get Filled", which is untrue. While the vast majority of gaps do get filled,

we can find some charts, where a gap has never filled. Depending on how we define a

gap, should base over definition of a gap fill. For instance I consider a gap when 2

bodies don't overlap, so I wait for a body fill to call the gap close. If one was using the

criteria of shadow overlap, a gap fill would occur with a shadow fill. Gaps are

typically continuation patterns, and sometimes mark the 50% point of a move. They

become more significant as the stock approaches the level of the gap as it often acts as

a magnet. During a gap fill, it is considered bearish closing below the bottom of the

gap and bullish closing above it. Once formed gap's will often serve as strong

support/resistance levels even after being closed for some time.

1. Exhaustion gaps signify the end of market bottoms and tops, where initially

overwhelming buying pressure, is soon consumed by selling pressure (and

vice versa for bottoms). Exhaustion gaps have significant volume associated

with them, and are often closed within 3 trading days. Sometimes an

exhaustion gap will be followed by another gap at the same levels, some

examples are shooting stars, doji stars, abandoned baby, etc. These 2 gap

formation are powerful reversal signal's.

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2. Three Gap Play occurs when a stock gaps in the direction of the trend for close

to three consecutive periods, with the final gap is an exhaustion gap that is larger

then the previous gaps with respect to size and volume. After the exhaustion gap,

the trend changes all of the gaps immediately get filled. After the final gap is

filled, the stock turns and continues well beyond the initial exhaustion gap.

Although pretty rare, they can be very profitable if recognized early and swing

traded

3. Evening Star

The evening star consists of three candlesticks:

1. A long white candlestick.

2. A small white or black candlestick that gaps above the close (body) of the

previous candlestick. This candlestick can also be a doji, in which case the

pattern would be an evening doji star.

3. A long black candlestick.

The long white candlestick confirms that buying pressure remains strong and the trend

is up. When the second candlestick gaps up, it provides further evidence of residualbuying pressure. However, the advance ceases or slows significantly after the gap and

a small candlestick forms, indicating indecision and a possible reversal of trend. If the

small candlestick is a doji, the chances of a reversal increase. The third long black

candlestick provides bearish confirmation of the reversal

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After advancing from 68 to 91 in about two weeks, AT&T (T) formed an evening star

(red oval). The middle candlestick is a spinning top, which indicates indecision and

possible reversal. The gap above 91 was reversed immediately with a long black

candlestick. Even though the stock stabilized in the next few days, it never exceeded

the top of the long black candlestick and subsequently fell below 75.

http://stockcharts.com/def/servlet/SC.web?c=T

http://stockcharts.com/def/servlet/SC.web?c=T

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Bearish Abandoned Baby

The bearish abandoned baby resembles the evening doji star and also consists of three

candlesticks:

1. A long white candlestick.

2. A doji that gaps above the high of the previous candlestick.

3. A long black candlestick that gaps below the low of the doji.

The main difference between the evening doji star and the bearish abandoned baby

are the gaps on either side of the doji. The first gap up signals a continuation of the

uptrend and confirms strong buying pressure. However, buying pressure subsides

after the gap up and the security closes at or near the open, creating a doji. Followingthe doji, the gap down and long black candlestick indicate strong and sustained selling

pressure to complete the reversal. Further bearish confirmation is not required.

Delta (DAL) formed an abandoned baby to mark a sharp reversal that carried thestock from 57.50 to 47.50. Although the open and close are not exactly equal, the

small white candlestick in the middle captures the essence of a doji. Indecision is

reflected with the small body and equal upper and lower shadows. In addition, the

middle candlestick is separated by gaps on either side, which add emphasis to the

reversal

http://stockcharts.com/def/servlet/SC.web?c=DAL

http://stockcharts.com/def/servlet/SC.web?c=DAL

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Blending Candlesticks

Candlestick patterns are made up of one or more candlesticks and these can be

blended together to form one candlestick. This blended candlestick captures theessence of the pattern and can be formed using the following:

The open of first candlestick

The close of the last candlestick

The high and low of the pattern

By using the open of the first candlestick, close of the second candlestick, and

high/low of the pattern, a Bullish Engulfing Pattern or Piercing Pattern blends into a

Hammer. The long lower shadow of the Hammer signals a potential bullish reversal.

As with the Hammer, both the Bullish Engulfing Pattern and the Piercing Pattern

require bullish confirmation.

http://stockcharts.com/education/GlossaryE.html#EngulfingPattern

http://stockcharts.com/education/GlossaryP.html#PiercingLine

http://stockcharts.com/education/GlossaryH.html#Hammer

http://stockcharts.com/education/GlossaryH.html#Hammer

http://stockcharts.com/education/GlossaryP.html#PiercingLine


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Blending the candlesticks of a Bearish Engulfing Pattern or Dark Cloud Cover Pattern

creates a Shooting Star. The long upper shadow of the Shooting Star indicates a

potential bearish reversal. As with the Shooting Star, Bearish Engulfing and Dark

Cloud Cover Patterns require bearish confirmation.

Comparison of Candle Stick with Traditional Bar Charts


http://stockcharts.com/education/GlossaryD.html#DarkCloudCover

http://stockcharts.com/education/GlossaryS.html#ShootingStar

http://stockcharts.com/education/GlossaryS.html#ShootingStar

http://stockcharts.com/education/GlossaryD.html#DarkCloudCover


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Many traders consider candlestick charts more visually appealing and easier to

interpret.

Each candlestick provides an easy-to-decipher picture of price action.

Immediately a trader can see compare the relationship between the open and

close as well as the high and low. The relationship between the open and close

is considered vital information and forms the essence of candlesticks.

Hollow candlesticks, where the close is greater than the open, indicate buying

pressure. Filled candlesticks, where the close is less than the open, indicate

selling pressure.

Merits of Candle Stick

Bulls vs. Bear - A candlestick depicts the battle between Bulls (buyers) and Bears

(sellers) over a given period of time. An analogy to this battle can be made between

two football teams, which we can also call the Bulls and the Bears. The bottom (intra-

session low) of the candlestick represents a touchdown for the Bears and the top

(intra-session high) a touchdown for the Bulls. The closer the close is to the high, the

closer the Bulls are to a touchdown. The closer the close is to the low, the closer the

Bears are to a touchdown. While there are many variations, I have narrowed the field

to 6 types of games (or candlesticks):

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1. Long white candlesticks indicate that the Bulls controlled the ball (trading) for

most of the game.

2. Long black candlesticks indicate that the Bears controlled the ball (trading) for

most of the game.

3. Small candlesticks indicate that neither team could move the ball and prices

finished about where they started.

4. A long lower shadow indicates that the Bears controlled the ball for part of the

game, but lost control by the end and the Bulls made an impressive comeback.

5. A long upper shadow indicates that the Bulls controlled the ball for part of the

game, but lost control by the end and the Bears made an impressive comeback.

6.

A long upper and lower shadow indicates that the both the Bears and the Bullshad their moments during the game, but neither could put the other away,

resulting in a standoff

What Candlesticks Don't Tell Us

Candlesticks do not reflect the sequence of events between the open and close, only

the relationship between the open and the close. The high and the low are obvious and

indisputable, but candlesticks (and bar charts) cannot tell us which came first.

With a long white candlestick, the assumption is that prices advanced most of thesession. However, based on the high/low sequence, the session could have been more

volatile. The example above depicts two possible high/low sequences that would form

the same candlestick.

The first sequence shows two small moves and one large move: a small decline off

the open to form the low, a sharp advance to form the high, and a small decline to

form the close.

http://www.stockcharts.com/education/GlossaryV.html#Volatility

http://www.stockcharts.com/education/GlossaryV.html#Volatility

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The second sequence shows three rather sharp moves: a sharp advance off the open to

form the high, a sharp decline to form the low, and a sharp advance to form the close.

The first sequence portrays strong, sustained buying pressure, and would beconsidered more bullish. The second sequence reflects more volatility and some

selling pressure. These are just two examples, and there are hundreds of potential

combinations that could result in the same candlestick. Candlesticks still offer

valuable information on the relative positions of the open, high low and close.

However, the trading activity that forms a particular candlestick can vary.

Technical analysis: the use of trendOne 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:

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It isn‟t hard to see that the trend in figure is up. However, it isn‟t always this easy to see

a trend.

There are lots of ups and downs in this chart, but there isn‟t a clear

indication of which direction this security is headed.

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The Importance of Trend

It is important to be able to understand and identify trends so that you can trade

with them rather than trade against them. Two important sayings in technical analysisare “the trend is your friend” and “don‟t buck the trend” Illustrating how important

trend analysis is for technical trade.

Types of Trend

There are three types of trend:

1. Up Trends

2. Downtrends3. Trend Line

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.

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. Forexample, the peak at trend is higher than the peak at uptrend. The uptrend will be

deemed broken if the next low on the chart falls below trend.

Downtrend

Describes the price movement of a financial asset when the overall direction is

downtrend. A formal downtrend occurs when each successive peak and trough is

lower than the ones found earlier in the trend.

Notice how each successive peak and trough is lower than the previous one. For

example, the low trend is lower than the low at Point. The downtrend will be deemed

broken once the price closes above the high at high direction trend. Downtrend is the

opposite of uptrend.

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Trend lines

A trend line is a simple charting technique that adds a line to a chart to represent the

trend in the market o r a stock. Drawing a trend line 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 the reversals.

As you see in above Figure, an upward trend lines 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 trend line helps

traders to anticipate the point at which a stock ‟s price will begin moving upwards again.

Similarly, a downward trend line is drawn at the highs of the downward trend. This line

rep resents the resistance level that a stock faces every time the price moves from a low

to a high.

Learnings:

Importance of information technology in the field of stock broking is

immense.

Stock broking companies run with the help of IT.The terminal through which the brokers buy and sell share is a software that

completely depends on the internet. For Sharekhan, this terminal has been

designed by the software company “Spider”.

Buying and selling through internet is fast. As soon as the prices of shares go

up or come down, they can be sold or purchased.

Customer Relationship is very necessary for the company to retain the

customers.

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In Sharekhan I have learned how to maintain good relations with the

customers by giving them the proper service and solving their queries

regarding the share market.

I have also learned how to maintain good relation with the employees and theco-trainees.

In Sharekhan Ltd. I have learned a lot relating to the stock market.

Learned about various products of the Sharekhan Limited.

Learned about various products used in the share market especially Demat

accounts and Mutual Funds.

Learned how to use online trading terminal.

Learned how to take appointments.

Learned how to approach the customers.

Learned how to open and close the calls.Learned how to interact with people, how to convince them and guide them in

trading.

Learned the various policies of the company.

Learned to manage time properly.

Got the practical knowledge of the market.

Had a practical experience of working in a reputed organization.

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Conclusion

With the help of project, it can be concluded that Technical & Fundamental Analysisplay a very important role in the share market. Lot of investors are investing their

money after seeing the trend of charts. With the help of Fundamental Analysis we canknow the past performance of the companies. Fundamental Analysis considers the

long-term performance of companies and this helps the investors to invest theirmoney for long term as well as can get the good returns.

Technical Analysis comprises short-term analysis of companies. Technical Analysis

really just studies supply and demand in the market in an attempt to determine what

direction or trend will continue in the future. The study of technical as well as

fundamental analysis can give detail information about the well running companies in

the market. Before investing in any company one should study these two concepts.

Findings

It is observed that Technical analysis is of great significance while investing in

equities. It provides right signal at right time in most of the cases. Use of various

indicators makes the analytical task a lot easier and thus helps greatly in indecisive

times. As observed during various major events like Election, Budget etc one must be

very cautious and should keep in mind on the Technical indicators for short term

perspective. Besides this trend, confirmation from volume activities and Oscillators

provide buying and selling signal especially for long term perspective.

Recommendations

Technical analysis is helpful in more than 80% cases but still there is need to

decide trade off between profit and loss. So investment must be done

carefully.

Risk should be minimized for an uncertain period by hedging our investment

or keeping away from market during volatile times if we are not sure of which

way the market will move.

Generally when market becomes range bound and we are not in position to

find out which way the market will move, we should liquidate our positions.

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Limitations of Study

To understand the overall working of share market, the period of 45 days was

not enough.Moreover, very few investor and agents have a detail knowledge of the study.

The data provided by the investor and the agents can‟t be held true as 100%

correct.

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Bibliography

Books-:

Security Analysis & Portfolio Management- Sudhindra Bhat

Security Analysis & Portfolio Management- Rohini Singh

Websites-:

www.bseindia.com

www.nseindia.com

www.moneycontrol.com

www.sharekhan.com

www.shrekhanlearnings.com

www.investopedia.com

www.etintelligence.com

www.stockcharts.com

http://www.bseindia.com/

http://www.nseindia.com/

http://www.moneycontrol.com/

http://www.sharekhan.com/

http://www.shrekhanlearnings.com/

http://www.investopedia.com/

http://www.etintelligence.com/

http://www.stockcharts.com/

http://www.stockcharts.com/

http://www.etintelligence.com/

http://www.investopedia.com/

http://www.shrekhanlearnings.com/

http://www.sharekhan.com/

http://www.moneycontrol.com/

http://www.nseindia.com/

http://www.bseindia.com/

Bhati

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Transcript of Bhati