balaji project

Download Balaji Project

Post on 26-Mar-2015

370 views

Category:

Documents

4 download

Embed Size (px)

TRANSCRIPT

Technical Analysis of Cement Sector in India

Executive SummaryThe main aim of the investor is to minimize the risk involved in investment & maximize the return. Today there are number of options available to investor like Post Office investment, Bank Deposit, Insurance, Mutual Fund, Stock Market etc... Technical analysis is a financial markets technique that claims the ability to forecast the future direction of security prices through the study of past market data, primarily price and volume. This project is about a brief introduction to Technical Analysis, different price patterns and trends in financial markets and attempt to exploit that patterns.etc The contents in this project are made simple so as to make a layman understands the terms used in the Technical Analysis. The core area of this project focuses what a technical analysts may employ models and trading rules based, for example, on price transformations, such as the Relative Strength Index, moving averages, through recognition of chart patterns. This project contains some elementary statistics which are used in calculation which help in drawing inferences. The objective of the study helps to predict or forecast the short, intermediate & long term price movements. When to buy and sell stock by analyzing technical indicators. And helps to measure to the rate of change between the current price and price in past and to identify overbought& oversold region. The art of technical analysis for it is an art is to identify trend changes at an early stage and to maintain an investment an investment posture until the weight of the evidence indicates that the trend has been reversed. Technical Analysis also provides a comprehensive study on stock historical price charts and predicts the future trend in the market. But still there is much controversial opinion on the validity of technical trading rule. It requires more study to prove the usefulness of technical analysis in investors buy/sell/hold decision making.

The Administrative management college, Bangalore.

1

Technical Analysis of Cement Sector in India

INTRODUCTION ABOUT TECHNICAL ANALYSIS:Technical analysis is a financial markets technique that claims the ability to forecast the future direction of security prices through the study of past market data, primarily price and volume. In its purest form, technical analysis considers only the actual price behavior of the market or instrument, on the assumption that price reflects all relevant factors before an investor becomes aware of them through other channels. Technical analysts may employ models and trading rules based, for example, on price transformations, such as the Relative Strength Index, moving averages, regressions, inter-market and intra-market price correlations, cycles or, classically, through recognition of chart patterns. General description Technical analysts (or technicians) seek to identify price patterns and trends in financial markets and attempt to exploit those patterns. While technicians use various methods and tools, the study of price charts is primary. Technicians especially search for archetypal patterns, such as the well-known head and shoulders reversal pattern, and also study such indicators as price, volume, and moving averages of the price. Many technical analysts also follow indicators of investor psychology. Critics argue that these 'patterns' are simply random effects on which humans impose causation. They state that human see patterns that aren't there and then ascribe value to them. Technical analysts also extensively use indicators, which are typically mathematical transformations of price or volume. These indicators are used to help determine whether an asset is trending, and if it is, its price direction. Technicians also look for relationships between price, volume, and in the case of futures, open interest. Examples include the relative strength index, and MACD. Other avenues of study

The Administrative management college, Bangalore.

2

Technical Analysis of Cement Sector in India

include correlations between changes in options [implied volatility] and put/call ratios with price. Technicians seek to forecast price movements such that large gains from successful trades exceed more numerous but smaller losing trades, producing positive returns in the long run through proper risk control and money management. Technical analysis is frequently contrasted with fundamental analysis, the study of economic factors that some analysts say can influence prices in financial markets. Pure technical analysis holds that prices already reflect all such influences before investors are aware of them, hence the study of price action alone. Some traders use technical or fundamental analysis exclusively, while others use both types to make trading decisions. Lack of evidence Critics of technical analysis include well known fundamental analysts. For example, Peter Lynch once commented, "Charts are great for predicting the past." Warren Buffet has said, "I realized technical analysis didn't work when I turned the charts upside down and didn't get a different answer" and "If past history was all there was to the game, the richest people would be librarians. Most academic studies say technical analysis has little predictive power, but some studies say it may produce excess returns. For example, measurable forms of technical analysis, such as non-linear prediction using neural networks, have been shown to occasionally produce statistically significant prediction results. A Federal Reserve working paper regarding support and resistance levels in short-term foreign exchange rates "offers strong evidence that the levels help to predict intraday trend interruptions," although the "predictive power" of those levels was "found to vary across the exchange rates and firms examined."

The Administrative management college, Bangalore.

3

Technical Analysis of Cement Sector in India

Efficient market hypothesis The efficient market hypothesis (EMH) contradicts the basic tenets of technical analysis, by stating that past prices cannot be used to profitably predict future prices. Thus it holds that technical analysis cannot be effective. Economist Eugene Fame published the seminal paper on the EMH in the Journal of Finance in 1970, and said "In short, the evidence in support of the efficient markets model is extensive, and contradictory evidence is sparse. EMH advocates say that if prices quickly reflect all relevant information, no method (including technical analysis) can "beat the market." Developments which influence prices occur randomly and are unknowable in advance. Technicians say that EMH ignores the way markets work, in that many investors base their expectations on past earnings or track record, for example. Because future stock prices can be strongly influenced by investor expectations, technicians claim it only follows that past prices influence future prices. Random walk hypothesis The random walk hypothesis may be derived from the weak-form efficient markets hypothesis, which is based on the assumption that market participants take full account of any information contained in past price movements."The problem is that once such regularity is known to market participants, people will act in such a way that prevents it from happening in the future. History The principles of technical analysis derive from the observation of financial markets over hundreds of years. The oldest known example of technical analysis was a method used by Japanese traders as early as the 18th century, which evolved into the use of candlestick techniques, and is today a main charting tool. Many more technical tools and theories have been developed and enhanced in recent decades, with an increasing emphasis on computer-assisted techniques. The Administrative management college, Bangalore. 4

Technical Analysis of Cement Sector in India

Principles of technical analysis Technicians say that a market's price reflects all relevant information, so their analysis looks more at "internals" than at "externals" such as news events. Price action also tends to repeat itself because investors collectively tend toward patterned behavior -hence technicians' focus on identifiable trends and conditions. Market action discounts everything On most of the sizable return days the information that the press cites as the cause of the market move is not particularly important. Press reports on adjacent days also fail to reveal any convincing accounts of why future profits or discount rates might have changed. Our inability to identify the fundamental shocks that accounted for these significant market moves is difficult to reconcile with the view that such shocks account for most of the variation in stock returns. Prices move in trends Technical analysts believe that prices trend. Technicians say that markets trend up, down, or sideways (flat). An example of a security that had an apparent trend is AOL from November 2001 through August 2002. A technical analyst or trend follower recognizing this trend would look for opportunities to sell this security. AOL consistently moves downward in price. Each time the stock rose, sellers would enter the market and sell the stock; hence the "zig-zag" movement in the price. In other words, each time the stock edged lower, it fell below its previous relative low price. History tends to repeat itself Technical analysts believe that investors collectively repeat the behavior of the investors that preceded them. Technical analysis is not limited to charting, yet is always concerned with price trends. For example, many technicians monitor surveys of investor sentiment.. Technicians use these surveys to help determine whether a trend will continue or if a reversal could develop; they are most likely to anticipate a change when the s