AS A BUY AND SELL TOOL FOR THE INVESTORS *P.Kowsalya, Research Scholar, Anna university of Technology, Coimbatore. (Lecturer, PPG Institute of Technology, Coimbatore.) ** R.Karthikeyan, Asst. Prof, PPG Business School, Coimbatore Abstract The article is about the technical analysis as to how it plays an important role in secondary market, analysis of stocks and its usefulness towards trading A technical analyst is concerned with the direction of movement. He would be buying if he sees that main trend (or the underlying direction of movement) is rising and would be moving out of the scrip as and when he finds that the scrip is reversing direction. His approach is based on the analysis of the demand-supply equation. If the demand for scrip is greater than its supply the prices would be expected to rise, prompting the analyst to buy on the same count, if the supply of scrip exceeds its demand, the prices would be expected to move downwards and he would exit from the scrip or book profits. Technical analysis can be defined as the process of identifying trend reversal at an early stage and to ride the trend until the weight of evidence suggests that the trend has reversed directions. Candle stick charts Candle stick patterns are a form of technical analysis and charting used in the stock market, FOREX market and all other market. And they can be used in all time frames, from those looking for long term investments to those who use swing trading or day trading. The power of the candle sticks is that they excel at giving market turning points and when used properly can potentially decrease market risk exposure. The candle stick patterns can be of bullish engulfing pattern, , darkcloudcover, hammer and shooting star. The candle stick charts will frequently be in advance of traditional indicators, this will help you to enter and exit the market with better timing. The construction of candle stick chart is, if the close is lower than the open the real body is black. The real body is white if the close is higher than the open. The thin lines above and below the real body are called the shadows. The peak of the upper shadow is the high of the session and the bottom of the lower shadow is the low of the session. A long white real body visually displays the bulls are in charge. A long black real body signifies the bears are in control. Parabolic SAR Trading has many different techniques that can be used to good advantage and the parabolic SAR strategy is one of the techniques that can be use to good effect. The parabolic SAR for each trend is calculated independently. This works on the data of today to predict the values of tomorrow for the SAR. The parameters for using this in trade are as follows: when looking at the step function, it creates a more sensitive indicator and when using this particular idea you would use 0.02 for commodities and 0.01 for stocks. Using maximum increases the factor of acceleration so that the SAR does not move rapidly. This can also be used in trading as a stop- loss-trading. The trading rule when using the parabolic SAR indicator. If the indicator is above the set price then you should sell but if it is below the price set then purchasing is indicated. Moving averages The the shows the mean instrument price value for a certain period of time. When one calculates the moving averages, one averages out the instrument price

1 for this time period. As the price changes, its moving averages either increases or decreases. There are four different types of moving averages: simple, exponential, smoothed and linear weighted. The most common way to interpreting the price moving average is to compare its dynamics to the price action. When the instrument price rises above its moving average, a buy signal appears, if the price falls below its moving average, what we have is a sell signal. SMA=SUM (close, N)/N

Relative strength index One of the most popular technical analysis indicator, the index (RSI) is an oscillator that measures current price strength in relation to previous prices. The RSI is a versatile tool, it can be used to generate buy and sell signals, show overbought and oversold conditions confirm price movement, warn of potential price reversals through divergences. RSI buy signal- buy when the RSI crosses above the oversold line (30). RSI sell signal–sell when the RSI crosses below the overbought line (70).

The above chart is taken for daily performance of Axis Bank from august 2011 to 3th February 2012. To make decision parbolic SAR,moving average, were used. Parabolic SAR (SAR- stop and reverse) indicator shows the dots in the chart. If the dot is below the price movement it indicates buy position and if it’s above the price level it indicates sell position. From 5th January 2012 the SAR shows the buy signal at Rs. 782.5 The candle stick shows the bullish engulfing pattern on 23rd January and 2nd February 2012. This pattern indicates the market is going to increase further, so this is the right period to buy. Simple Moving Average gives postive cross over in this green line indicates 13 days moving average and the violet line indicates the 21 days moving average. Here the green line cuts violet line and move upwards and shows buy signal on 11th January 2012 at the price Rs.855.60. The RSI line is above the seventy line and it is over bought line still yet the price has not come down

2 below the seventy line so we can buy the stock. So for the axis bank all the four indicators has given buy signals so it is a good confirmation to buy the stock.

The above chart is taken for daily performance of ICICI Bank from August 2011 to 3th February 2012. To make decision parbolic SAR,moving average, relative strength index were used. Parabolic SAR (SAR- stop and reverse) indicator shows the dots in the chart. If the dot is below the price movement it indicates buy position and if it’s above the price level it indicates sell position. From 20th December 2011 the SAR shows the buy signal at Rs. 642 and now at Feb 1st week dots are in a position to cross above the candle stick chart so we can hold and sell once if it crosses above. The candle stick shows the Morning Star pattern on 1st week of February. This pattern indicates the market is bullish reversal after down trend further, so this is the right period to hold the investment. Simple Moving Average gives postive cross over in this green line indicates 13 days moving average and the violet line indicates the 21 days moving average. Here the green line cuts violet line and move upwards and shows buy signal on 13th January 2012 at the price Rs.709 and the both the line are moving parallely upwards and there is no proper signal to sell so its better to hold the stock. The RSI line is above the seventy line and it is over bought line still yet the price is slowly come down below the seventy line so we can hold the stock till the line comes down and once it comes down we can sell the stock . So for the ICICI Bank all the four indicators has given hold and sell signals. CONCLUSION The technical analysis is a useful tool for the investors as well as speculators to buy or sell the scrip. The technical analysis ignores all the others fundamental factors like economic position, industry growth, and company analysis and purely involves in the prediction of trends and chart patterns. REFERENCES 1. Fischer E. Donald, Jordon J. Ronald,(2006), Security analysis and portfolio management, Pearson education inc., New Delhi, pp.522-549.

3 2. Pandian Punithavathy(2008), Security analysis and portfolio management, Vikas publishing pvt ltd., Noida,pp.257-264. 3. http://chartink.com/ 4. http://nseguide.com/

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