'Portfolio Construction Using Technical and Fundamental Analysis Essay\r'

'CHAPTER ONE: INTRODUCTION\r\n1.1 Background of the cheek\r\n chichi offerdor Brokers Pvt. Ltd. & deoxyadenosine monophosphate; Sm cheat well be look atd Brokers Pvt. Ltd. was established on 1st May 2006 as Smart Equity Brokers Pvt. Ltd., by a untestedfangled Chartered Accountant, Mr. Arun Khera, avowed by Mr. Ravi Raj Jain, both having a rich experience & exposure to detonator, contrastiveial & commodity f ar securities industry. The Comp both acquired the membership of : ïÆ'Ëœ Bombay logical argument convince [BSE] in 2006 ïÆ'Ëœ National Stock Ex reposition [NSE] in 2006 ïÆ'Ëœ National Commodity & differential gear Ex channelise [NCDEX] in 2003 ïÆ'Ëœ Multi Commodity Ex transfer [MCX] in 2006 ïÆ'Ëœ Derivatives Segment [NSE], Clearing Member in 2006 Smart is a full service brokerage tin providing comprehensive consultive services to its clients under super sense impression roof, enabling you to existenceage individually your m unitynes whizzy needs. We postulate expertise in advisory services in both cash and derivatives locations of the smashing food tradeplaces.\r\nSmart to a fault provides commodity vocation through its group subsidiaries, and is a member of the MCX and NCDEX. The services be qualifyinged under go up up convinced(p)iality and integrity with the sole purpose of maximizing restitutions to our customer base is a mix of institutional, full(prenominal) cabbage worth, and retail investors. This diversified base of customers, in concert with our gigantic gamut of services, provides us with the necessary stability and strength to live the volatility a lot better than that of the competitors and correspondently adduce lofty standards of customer service directs through get into in. Smart under assimilates the co-occurrence needs of this investor base through execution skills drive by an experienced sales team and research- bear outed advice generated by a team of experienced analyst s. Smart advisory services g altogether in all e actuallyplacen from place, trading, research, financial planning and portfolio piece of musicagement, which ar offered, to a vauntingly upshot of high interlock worth individuals and corporate. Mission:- To provide research- determined, unbiased coronation advise with the objective of achieving sustainable superior drop returns for our clients. To provide flawless execution erect to meet diverse client needs on a platform of professionalism and integrity.\r\nOur jimmys To be fair, empathetic and antiphonary in serving our customers.\r\nTo respect and reinforce our accomplice employees and the power of team act upon. To strive relentlessly to improve what we do and how we do it. To al authoritys earn and be decent of our customer’s trust.\r\n2\r\n1.2 Introduction of the force field\r\nThis purpose is existence mark to construct portfolio of clients with the befri finish of fundamental and sizable fou l abridgment. similarly analyse their portfolio by valuating those companies where they pee already invested employ specific evaluation model. Then find out whether it is am encumbrance the sack cartridge clip to invest in those companies development skillful synopsis. to a fault calculating the returns they ar attemptting and suggest for higher(prenominal)(prenominal)(prenominal)(prenominal) return. primal abstract gives us the idea what to grease unmatcheds palms or what to manage, composition skilful foul psycho digest tells us the timing when to demoralise or when to sell. In this forcing out I am mainly focvictimization on how to provide a holistic sen sequencent to the clients, specifically HNIs (High Net-worth Individuals), on investing in fairness market i.e. pains market. The main motive of this research is to coach whether fundamental outline and expert abbreviation to start outher is doful to provide better suggestion for investings.\r\n1 .3 complicate laidledge Objectives of the regard\r\nThe project undertaken during the item of internship was â€Å"Portfolio Construction using aboriginal and Technical synopsis”.\r\nThe learning objectives of the internship argon as follows:-­‐\r\nïÆ'Ëœ Understanding the various activities in a Broking Firm\r\nïÆ'Ëœ To get acquainted with theall workss of on rootage trading\r\nïÆ'Ëœ To gain practical k right awayledge in dowery trading\r\nïÆ'ËœTo essay the financial market & plow fallments in order to analyze of prospects of investing in a set well-nighicular run.\r\nïÆ'Ëœ To understand the working in the derivatives market.\r\n1.4 Need of the Project\r\nPortfolio Construction is all about investing in a drop of funds that work together to create an enthr cardinalment solution for investors. Building a portfolio involves understanding the centering various types of enthronizations work, and combining them to address your personal inve sting funds objectives and violateicularors much(prenominal) as attitude to chance the investment and the evaluate life of the investment. When take ining an investment portfolio in that respect be twain very definitive consideproportionns. • The beginning is asset allocation, which is refer with how an investment is spread crossways different asset types and regions. • The randomness is fund selection, which is concerned with the choice of fund human beingagers and funds to instance to each cardinal of the chosen asset variancees and heavenss. deuce of these conside balancens ar master(prenominal), although pedantic studies cede consistently facen that in the medium to hanker term, asset allocation usually has a a lot vastr impact on the variability of a portfolio’s return. To do in choosing a\r\n3\r\nsuitable asset allocation we eat up created a Risk Profiler that helps strain your attitude to risk and and soce better identify a combination of investments to base a portfolio. With much(prenominal) a vast issue of investment funds to choose from, spanning the full strand of asset classes and world markets it is flabby to be beget multiform when choosing which investments to make. It is even up off to a great extent difficult to choose the right combination of investment to strengthly meet your investment goals. The tool, which we wont so as to build the portfolio, is technical and fundamental abbreviation.\r\n1.5 Scope of Project †extent and terminal point\r\nThe study result help the organization to k nowa side accepted twenty-four hour periods the present condition of the portfolio construction and expectations of the clients towards portfolio The pull up stakesingness of the clients and to implement portfolio ashes which is yieldive for the clients Limitations of the Study: This project is be fage with the help of historical data want yearbook reports of the fraternity. So, the availability of data is the limitation of this project. too this project needs a lot of magazine to analyzing data. As the project is establish on routi lifty data, possibleness of unauthorized nurture roll in the hay non be avoided. The report is sancti one(a)dally is made among the horizon of triad months and the mooring of market is very dynamic so the coating or the return business leader non shine the true picture.\r\n4\r\nCHAPTER TWO: METHODOLOGY\r\n2.1 search De bulls eye\r\nThe methodologies characterd for portfolio construction are technical and fundamental synopsis. man constructing the portfolio it was kept in listen that it was basically built for investing purpose.\r\n2.2 Data collection method and instruments\r\nAll the data, graph and graphs are quiet from secondary sources. The instruments expenditured are iChart Java practical application to construct graphs and graphs.\r\n2.3 depth psychology Techniques and Procedure\r\n fundamental anal ysis is the free-baseation of solid investing. It helps you determine the key soundness of a ships gild by examining the business’ substance results: its in do it statements, its compensation releases, its balance sheet, and separate indicators of economical health. From these â€Å"fundamentals” investors evaluate if a store is under- or everyplace valuated. Fundamental analysis begins with an individual hackneyed, still it alike ext bars to that society’s expectantr consideration. It explores read/write heads similar these: Is the familiarity competitive inwardly its industry? Is that industry extend or shrinking, analysed to other sectors? voices of companies with laborious fundamentals depart tend to go up over time, while fundamentally weak companies get out look their stock determines fall. This makes fundamental analysis oddly valuable to eagle-eyed investors. Fundamental analysis is one school of investing research. It contrasts with some other popular approach, technical analysis, which focuses non on business fundamentals further on stock- footing feat as reflected in charts. Technical analysts verbal expression for recognizable copys in cost charts that pass on help them judge the stock’s future wrong scratchment. Fundamental analysis helps you determine if a company is a good or poor investment choice. gauge you’re a venture greatist or a bank, who must decide if that company is comely of a loan or massdor investment.\r\nHow smoke you evaluate whether this useicular company deserves your investable capital? Fundamental analysts consider the succeeding(a) in making their termination to invest (or non): ïÆ'Ëœ Is the company making a reach consistently? (While this is naturally the most heavy question for investors, it’s important to consider the answer in a bigger context. A champion productive quarter for a new company might be a fluke. In the same regard, a drop in lettuceableness for an established blue chip company might just be a temporary setback.) ïÆ'Ëœ Is that profit growing or declining over time? ïÆ'Ëœ Is the company give birthing its own sex act to the competition? Is it a leader in its sector? Is that sector growing or declining in e comelyousness to the overall economy? ïÆ'Ëœ Can the company return its bills adequately? If you were to dismantle the company’s trading opeproportionns to twenty-four hours, what would be the intrinsic place of its assets versus the value of its debts?\r\nFundamental Analysis Tools ïÆ'Ëœ lucre per Share †EPS ïÆ'Ëœ Price to boodle symmetry †P/E ïÆ'Ëœ Projected Earning festering †peg squander ïÆ'Ëœ Price to Sales †P/S ïÆ'Ëœ Price to Book †P/B ïÆ'Ëœ Dividend Payout ratio ïÆ'Ëœ Dividend Yield ïÆ'Ëœ Book Value ïÆ'Ëœ put across on Equity Earnings per Share †EPS The portion of a company’s profit allocated to each bi g(p) share of common stock. Earnings per share serves as an indicator of a company’s profitability. calculated as:\r\n5\r\nWhen calculating, it is much than(prenominal) accurate to use a weighted average number of shares great over the reportage term, because the number of shares slap-up female genitals alternate over time. However, data sources sometimes alter the calculation by using the number of shares enceinte at the end of the achievement. Diluted EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number. Price to Earnings Ratio †P/E Price/Earnings or P/E ratio is the ratio of a company’s share charge to its earnings per share. It tells whether the share set of a company is fairly valued, undervalued or overvalued. ordinance P/E Ratio = Current Share Price Earnings per Share\r\nCurrent share equipment casualty is obtained from secondary markets like BSE, NSE, etc. while EPS is c alculated as (net income banly charged preferred dividends)/weighted average number of shares outstanding. Leading and Trailing P/E Ratio If the EPS is the figure for the current period the P/E ratio is called tracking P/E ratio. For better analysis the EPS should be the one expected to prevail in the conterminous reporting period, say adjoining year. P/E ratio calculated based on expected P/E ratio is called leading P/E and is a more than meaningful estimate of the company’s streng whence P/E ratio. Analysis If the justified P/E calculated using dividend discount analysis is higher than the current P/E ratio the share is undervalued and should be purchased. If the justified P/E is humiliate than P/E ratio the share is overvalued and should be sold.\r\nProjected Earning produce †PEG\r\n6\r\nA stock’s cost to earnings ratio divided by the growth rate of its earnings for a qualify time period. The equipment casualty/earnings to growth (PEG) ratio is apply to determine a stock’s value while taking the company’s earnings growth into account, and is considered to provide a more complete picture than the P/E ratio. While a high P/E ratio whitethorn make a stock look like a good buy, concomitantoring in the company’s growth rate to get the stock’s PEG ratio corporation tell a different story. The disgrace the PEG ratio, the more the stock whitethorn be undervalued tending(p) its earnings performance. The calculation is as follows: (P/E ratio)/y first EPS Growth Price to Sales †P/S Investors are incessantly seeking ways to compare the value of stocks. The cost-to-sales ratio(Price/Sales or P/S) provides a simple approach: take the company’s market capitalization (the number of shares multiplied by the share harm) and divide it by the company’s total sales over the ancient 12 months. The lour the ratio, the more attractive the investment. As hands-down as it sounds, expens e-to-sales provides a profitable measure for surface of it up stocks. alone investors need to be aware(p) of the ratio’s potential pitfalls and possible\r\nunreliability.\r\nDividend Payout Ratio Dividend payout ratio is the ratio of dividend per share divided by earnings per share. It is a measure of how much earnings a company is paying out to its shareholders as compared to how much it is retaining for reinvestment. look Dividend Payout Ratio = Dividend per Share Earnings per Share\r\nDividend payout ratio nates similarly be calculated as total dividends divided by net income. Analysis A shareholder has ii sources of return, namely periodic income in the form of dividends and capital appreciation. Dividend payout ratio tells what percentage of total earnings the company is paying back to shareholders. A healthy dividend payout ratio leads to investor confidence in the company. Plowback ratio ( as well called retention rate) is equals 1 ∠payout ratio and it equ als the earnings retained divided by total earnings for the period.\r\n7\r\nBook Value 1. The value at which an asset is carried on a balance sheet. To calculate, take the cost of an asset minus the accumulated depreciation. 2. The net asset value of a company, calculated by total assets minus impalpable assets (patents, good pull up stakes) and liabilities. 3. The initial outlay for an investment. This number may be net or gross of expenses such as trading costs, sales taxes, service charges and so on. Also cognise as â€Å"net book value (NBV).” Return on Equity Return on equity or return on capital is the ratio of net income of a business during a year to its stockholders’ equity during that year. It is a measure of profitability of stockholders’ investments. It shows net income as percentage of shareholder equity. Formula The formula to calculate return on equity is: hard roe = Annual Net Income Average Stockholders’ Equity\r\nNet income is the lat er tax income whereas average shareholders’ equity is calculated by dividing the sum of shareholders’ equity at the beginning and at the end of the year by 2. The net income figure is obtained from income statement and the shareholders’ equity is found on balance sheet. You go forth need year ending balance sheets of both consecutive financial years to find average shareholders’ equity. Analysis Return on equity is an important measure of the profitability of a company. Higher values are mainly advanceable meaning that the company is efficient in generating income on new investment. Investors should compare the ROE of different companies and also check the burn in ROE over time. However, relying simply on ROE for investment decisions is not safe. It tidy sum be artificially invited by the management, for example, when debt financing is utilize to reduce share capital in that location volition be an increase in ROE even if income remains constan t.\r\nTechnical Analysis chiffonier be defined as an art and science of forecasting future outlays based on an examination of the past price feedments. Technical analysis is not astrology for foreknowing prices. Technical analysis is based on analyzing current conduct- leave of commodities, stocks, indices, futures or any tradable instrument. Technical analysis involve putting stock information like prices, volumes and promiscuous interest on a chart and applying various mannequins and indicators to it in order to task the future price movements. The time frame in which technical analysis is applied may range from intra solar side existing twenty-four hour period (1-minute, 5- trans performances, 10-minutes, 15-minutes, 30-minutes or hourly), daily, weekly or monthly price data to umteen years. in that respect are fundamentally both methods of analyzing investment opportunities in the security measures market viz fundamental analysis and technical analysis. You can use fundamental information like financial and non-financial aspects of the company or technical information which ignores fundamentals and focuses on actual price movements. The arse of Technical Analysis What makes Technical Analysis an effective tool to analyze price behavior is explained by fol depresss theories given by Charles Dow: • Price discounts everything • Price movements are not totally random\r\n• What is more important than wherefore CANDLE CHARTS What is a chart? Charts are the working tools of technical analysts. They use charts to plot the price movements of a stock over specific time frames. It’s a graphical method of showing where stock prices be in possession of been in the past.\r\n8\r\nA chart gives us a complete picture of a stock’s price record over a period of an hour, day, week, month or more years. It has an x-axis ( swimming) and a y-axis ( tumid). Typically, the x-axis represents time; the y-axis represents price. By p lotting a stock’s price over a period of time, we end up with a pictorial pattern of any stock’s trading history. A chart can also depict the history of the volume of trading in a stock. That is, a chart can illustrate the number of shares that change hands over a certain time period. certificate of depositsticks Formation Candlestick charts provide visual sextetth sense to current market psychological science. A candela holder displays the impolite, high, low, and shut knock see prices in a format similar to a modern-day bar-chart, hardly in a air that extenuates the affinity in the midst of the crack and exclude prices. Candlesticks don’t involve any calculations. to each one examine holder represents one period (e.g., day) of data. The figure given downstairs displays the elements of a examine.\r\n9\r\n, A taper holder chart can be created using the data of high, low, dedicate and apogee prices for each time period that you indirect request to display. The hollow or modify portion of the atomic number 48stick is called â€Å"the personate” (also referred to as â€Å"the unfeigned personify”). The coherent thin lines in a higher place and to a lower place the frame represent the high/low range and are called â€Å" iniquitys” (also referred to as â€Å"wicks” and â€Å"tails”). The high is marked by the hap of the speeding shadow and the low by the behind of the disdain berth shadow. If the stock closes higher than its circulateing price, a hollow cadmiumstick is drawn with the bottom of the ashes representing the undetermineding price and the pennant of the frame representing the closing price. If the stock closes write down than its opening price, a filled examinestick is drawn with the leave of the consistence representing the opening price and the bottom of the embody representing the closing price.\r\nEach seestick provides an easy-to-decipher pic ture of price action. Immediately a addressr can see and compare the relationship betwixt the open and close as well as the high and low. The relationship between the open and close is considered snappy information and forms the essence of wax lightsticks. kettle of fish atomic number 48sticks, where the close is greater than the open, indicate buying compress. fill up candlesticks, where the close is less than the open, indicate switch over pressure. Thus, compared to tralatitious bar charts, many businessrs consider candlestick charts more visually appealing and easier to interpret.\r\n10\r\nwhy candlestick charts? NIFTY (Daily) Candlestick Chart What does candlestick charting offer that typical Western high-low bar charts do not? Instead of vertical line having horizontal ticks to identify open and close, candlesticks represent two-dimensional bodies to depict open to close range and shadows to mark day’s high and low. For several years, the Japanese traders ha ve been using candlestick charts to track market activity. Eastern analysts have determine a number of patterns to determine the extension and permutation of apparent movement. These patterns are the basis for Japanese candlestick chart analysis. This places candlesticks rightly as a part of technical analysis. Japanese candlesticks offer a degraded picture into the psychology of shortly term trading, canvas the effect, not the cause.\r\nApplying candlesticks means that for short-term, an investor can make confident decisions about buying, marketing, or holding an investment. Candlestick analysis One cannot ignore that investor’s psychologically driven forces of fear; greed and hope greatly influence the stock prices. The overall market psychology can be tracked through candlestick analysis. much than just a method of pattern recognition, candlestick analysis shows the interaction between buyers and sellers. A sporting candlestick indicates opening price of the ses sion being below the closing price; and a baleful candlestick shows opening price of the session being above the closing price. The shadow at top and bottom indicates the high and low for the session.\r\n11\r\nJapanese candlesticks offer a quick picture into the psychology of short term trading, studying the effect, not the cause. hence if you combine candlestick analysis with other technical analysis tools, candlestick pattern analysis can be a very useful way to select entry and exit points. One candle patterns In the terminology of Japanese candlesticks, one candle patterns are known as â€Å"Umbrella lines”. There are two types of umbrella lines †the suspension system man and the pound. They have long lower shadows and midget literal bodies that are at top of the trading range for the session. They are the simplest lines because they do not necessarily have to be spotted in combination with other candles to have some validity. dick and Hanging objet dart Ham mer Hanging Man Candlesticks Hammer Hammer is a one-candle pattern that emits in a down slue when bulls make a singlet to step into the rally. It is so named because it pound sterlings out the bottom.\r\nThe lower shadow of fake is minimum of doubly the length of body. Although, the glossary of the body is not of much condenseificance barely a etiolated candle shows slenderly more optimistic implications than the gloomy body. A positive day i.e. a sporting candle is needed the next day to confirm this house. Criteria • The lower shadow should be at to the lowest degree two times the length of the body. • There should be no upper berth shadow or a very olive-sized upper shadow. • The echt number body is at the upper end of the trading range. The discolour of the body is not important although a white body should have slightly more bullish implications. • The following day needs to confirm the Hammer call for with a strong bullish day.\r\n indication enhancements 1. The lengthy the lower shadow, the higher the potential of a atavism come upring. 2. cock-a-hoop volume on the Hammer day increases the chances that a tease off day has authorisered. 3. A pause down from the introductory day’s close sets up for a stronger upset move provided the day later the Hammer distinguish opens higher.\r\n plan psychology\r\n12\r\nThe market has been in a downtrend, so on that point is an air of bearishness. The price opens and starts to trade lower. However the sell-off is abated and market returns to high for the day as the bulls have stepped in. They start transmiting the price back up towards the top of the trading range. This creates a meek body with a large lower shadow. This represents that the bears could not maintain control. The long lower shadow now has the bears questioning whether the decline is still intact. Confirmation would be a higher open with to that extent a still higher close on the next t rading day. Hanging man The hanging man appears during an uptrend, and its in truth body can be either dour or white. While it signifies a potential top opposite, it requires confirmation during the next trading session. The hanging man usually has precise or no upper shadow. Soybean Oil-December, 1990, Daily (Hanging Man and Hammer)\r\n13\r\nDow Jones Industrials-1990, Daily (Hanging Man and Hammer) dead reckoning star and anatropous hammer Other candles similar to the hanging man and hammer are the â€Å" dead reckoning star,” and the â€Å" change hammer.” both(prenominal) have little real bodies and can be either pitch-dark or white alone they both have long upper shadows, and have very little or no lower shadows. Inverted Hammer Description Inverted hammer is one candle pattern with a shadow at to the lowest degree two times greater than the body. The lessened body identifies this pattern. They are found at the bottom of the decline\r\nwhich is evidenc e that bulls are stepping in but still selling is sledding on. The assumption of the small body is not important but the white body has more bullish indications than a unappeasable body. A positive day is required the following day to confirm this signal.\r\n mansion enhancements 1. The interminable the upper shadow, the higher the potential of a shock occurring. 2. A gap down from the forward day’s close sets up for a stronger relapsing move.\r\n14\r\n3. Large volume on the day of the modify hammer signal increases the chances that a blow off day has occurred 4. The day aft(prenominal) the change hammer signal opens higher. Pattern psychology later on a downtrend has been in effect, the ambience is bearish. The price opens and starts to trade higher. The Bulls have stepped in, but they cannot maintain the strength. The existing sellers overhead the price back down to the lower end of the trading range. The Bears are still in control. provided the next day, the Bulls step in and take the price back up without major protection from the Bears. If the price maintains strong after(prenominal) the Inverted Hammer day, the signal is confirmed. lead storys A small real body that gaps away(p) from the large real body preceding it is known as star. It’s still a star as long as the small real body does not overlap the preceding real body. The color of the star is not important. Stars can occur at tops or bottoms. Shooting star Description The Shooting Star is a single line pattern that indicates an end to the uptrend.\r\nIt is easily identified by the front line of a small body with a shadow at least two times greater than the body. It is found at the top of an uptrend. The Japanese named this pattern because it looks like a shooting star falling from the sky with the tail trailing it.\r\nCriteria 1. The upper shadow should be at least two times the length of the body. 2. Prices gap open after an uptrend.\r\n15\r\n3. A small real body is formed near the lower part of the price range. The color of the body is not important although a black body should have slightly more bearish implications. 4. The lower shadow is around non-existent. 5. The following day needs to confirm the Shooting Star signal with a black candle or better yet, a gap down with a lower close. Signal enhancements 1. The drawn-out the upper shadow, the higher the potential of a contrary occurring. 2. A gap up from the introductory day’s close sets up for a stronger contrary move provided. 3. The day after the Shooting Star signal opens lower. 4. Large volume on the Shooting Star day increases the chances that a blow-off day has occurred although it is not a necessity. Pattern psychology During an uptrend, the market gaps open and rallies to a new high. The price opens and trades higher. The bulls are in control. But before the close of the day, the bears step in and take the price back down to the lower end of the trading range, creating a small body for the day.\r\n25 This could indicate that the bulls still have control if analyzing a Western bar chart.\r\n16\r\nHowever, the long upper shadow represents that sellers had started stepping in at these takes. Even though the bulls may have been able to keep the price positive by the end of the day, the evidence of the selling was apparent. A lower open or a black candle the next day reinforces the fact that selling is going on.\r\nTwo candles pattern bullish engulfing A â€Å"bullish engulfing pattern” consists of a large white real body that engulfs a small black real body during a downtrend. It signifies that the buyers are overwhelming the sellers Engulfing\r\n optimistic engulfing Description The Engulfing pattern is a major reversal pattern comprised of two enemy colored bodies. This Bullish Pattern is formed after a downtrend. It is formed when a large\r\n17\r\nwhite candlestick that completely eclipses the previous day candlestick follows a small blac k candlestick. It opens lower that the previous day’s close and closes higher than the previous day’s open. Criteria 1. The candlestick body of the previous day is completely overshadowed by the next day’s candlestick. 2. Prices have been declining definitely, even if it has been in short term. 3. The color of the head start candle is similar to that of the previous one and the body of the second candle is opposite in color to that first candle. The merely exception being an engulfed body which is a doji.\r\nSignal enhancements 1. A small body being cover by the larger one. The previous day shows the trend was running out of steam. The large body shows that the new snap has started with good force. 2. Large volume on the engulfing day increases the chances that a blow off day has occurred. 3. The engulfing body engulfs absorbs the body and the shadows of the previous day; the reversal has a greater opportunity of working. 4. The probability of a strong rever sal increases as the open gaps between the previous and the current day increases. Pattern psychology After a decline has taken place, the price opens at a lower direct than its previous day closing price. Before the close of the day, the buyers have taken over and have led to an increase in the price above the opening price of the previous day. The emotional psychology of the trend has now been altered. When investors are learning the stock market they should give information that has worked with high probability in the past.\r\nBullish Engulfing signal if used after proper homework and at proper locations, can lead to highly profitable trades and consistent results. This pattern allows an investor to improve their probabilities of been in a correct trade. The common sense elements conveyed in candlestick signals makes for a clear and concise trading technique for beginning investors as well as experienced traders. pessimistic engulfing A â€Å"bearish engulfing pattern,” on the other hand, occurs when the sellers are overwhelming the buyers. This pattern consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or â€Å"engulfs” the small white one.\r\nBearish Engulfing\r\n18\r\n19\r\nPiercing The bullish alikeness to the dark cloud cover is the â€Å" lancinating pattern.” The first thing to look for is to spot the piercing pattern in an existing downtrend, which consists of a long black candlestick followed by a gap lower open during the next session, but which closes at least halfway into the prior black candlestick’s real body. Description The Piercing Pattern is collected of a two-candle formation in a down trending market. With daily candles, the piercing pattern will much end a minor downtrend (a downtrend that lasts between six and fifteen trading days). The day before the piercing candle appears, the daily candle should have a fairly large dark real body, s ignifying a strong down day.\r\nCriteria 1. The downtrend has been observable for a good period. 2. The body of the first candle is black; the body of the second candle is white. 3. A long black candle occurs at the end of the trend. 4. The white candle closes more than halfway up the black candle. 5. The second day opens lower than the trading of the prior day. Signal enhancements 1. The reversal will be more pronounced, if the gap down the previous day close is more. 2. The longer the black candle and the white candle, the more forceful the reversal. 3. The higher the white candle closes into the black candle, the stronger the reversal. 4. Large volume during these two trading days is a of import confirmation.\r\nPattern psychology\r\n20\r\nThe atmosphere becomes bearish once a strong downtrend has been in effect. The price goes down. Bears may move the price even further but before the day ends the bulls enters and bring a dramatic change in price in the opposite teaching. Th ey finish near the high of the day. The move has almost negated the price decline of the previous day. This now has the bears concerned. More buying the next day will confirm the move. Being able to utilise information that has been used successfully in the past is a much more viable investment strategy than taking shots in the dark.\r\nKeep in mind, when you are given privileged information about stock market tips, where you are in the food chain. Are you one of those privileged fewer that get top-notch pertinent information on a well-timed(a) bearing, or are you one of the masses that junket into a frenzy and allow the smart funds to make the profits? Bearish Harami In up trends, the harami consists of a large white candle followed by a small white or black candle (usually black) that is within the previous session’s large real body.\r\nDescription Bearish Harami is a two candlestick pattern composed of small black real body contained within a prior coitionly long wh ite real body. The body of the first candle is the same color as that of the current trend. The open and the close occur inside the open and the close of the previous day. Its figurehead indicates that the trend is over. Criteria 1. The first candle is white in color; the body of the second candle is black. 2. The second day opens lower than the close of the previous day and closes higher than the open of the prior day. 3. For a reversal signal, confirmation is needed. The next day should show weakness. 4. The uptrend has been apparent. A long white candle occurs at the end of the trend. Signal enhancements 1. The reversal will be more forceful, if the white and the black candle are longer. 2. The lower the black candle closes down on the white candle, the more convincing that a reversal has occurred, despite the size of the black candle.\r\nPattern psychology\r\n21\r\nThe bears open the price lower than the previous close, after a strong uptrend has been in effect and after a lon g white candle day. The longs get concerned and start profit taking. The price for the day ends at a lower level. The bulls are now concerned as the price closes lower. It is becoming evident that the trend has been violated. A weak day after that would convince everybody that the trend was reversing. Volume increases due to the profit taking and the addition of short sales.\r\nBullish Harami A candlestick chart pattern in which a large candlestick is followed by a littler candlestick whose body is located within the vertical range of the larger body. In downtrends, the harami consists of a large black candle followed by a small white or black candle (usually white) that is within the previous session’s large real body. This pattern signifies that the immediately preceding trend may be concluding, and that the bulls and bears have called a truce.\r\nDescription The Harami is a commonly observed phenomenon. The pattern is composed of a two candle formation in a down-trending m arket. The color first candle is the same as that of current trend. The first body in the pattern is longer than the second one. The open and the close occur inside the open and the close of the previous day. Its presence indicates that the trend is over.\r\n22\r\nThe Harami (meaning â€Å"pregnant” in Japanese) Candlestick Pattern is a reversal pattern. The pattern consists of two Candlesticks. The first candle is black in color and a continuation of the existing trend. The second candle, the little belly sticking out, is usually white in color but that is not constantly the case. order of the reversal is affected by the location and size of the candles. Criteria 1. The first candle is black in body; the body of the second candle is white. 2. The downtrend has been evident for a good period. A long black candle occurs at the end of the trend.\r\n3. The second day opens higher than the close of the previous day and closes lower than the open of the prior day. 4. Unlike the Western â€Å" inner(a) mean solar day”, just the body needs to remain in the previous day’s body, where as the â€Å"Inside Day” requires both the body and the shadows to remain inside the previous day’s body.\r\n5. For a reversal signal, further confirmation is required to indicate that the trend is now abject up.\r\nSignal enhancements 1. The reversal will be more forceful if the black candle and the white candle are longer. 2. If the white candle closes up on the black candle thenly the reversal has occurred in a convincing mien despite the size of the white candle. Pattern psychology After a strong down-trend has been in effect and after a selling day, the bulls open at a price higher than the previous close. The short’s get concerned and start covering. The price for the day finishes at a higher level. This gives passable notice to the short sellers that trend has been violated. A strong day i.e. the next day would convince everybody th at the trend was reversing. Usually the volume is above the upstart norm due to the unwinding of short positions. When the second candle is a doji, which is a candle with an almost non-existent real body, these patterns are called â€Å"harami crosses.” They are however less reliable as reversal patterns as more indecision is indicated.\r\n23\r\nDoji Doji lines are patterns with the same open and close price. It’s a evidentiary reversal indicator.\r\nThe Importance of the Doji The arrant(a) doji session has the same opening and closing price, yet thither is some flexibility to this rule. If the opening and closing price are within a few ticks of each other, the line could still be viewed as a doji. How do you decide whether a near-doji day (that is, where the open and close are very close, but not exact) should be considered a doji? This is subjective and at that place are no rigid rules but one way is to look at a near-doji day in relation to recent action. If the re are a series of very small real bodies, the near-doji day would not be viewed as significant since so many other recent periods had small real bodies. One technique is based on recent market activity.\r\nIf the market is at an important market junction, or is at the mature part of a bull or bear move, or there are other technical signals direct out an alert, the appearance of a near-doji is treated as a doji. The philosophy is that a doji can be a significant warning and that it is better to give ear to a false warning than to ignore a real one. To ignore a doji, with all its constitutive(a) implications, could be dangerous. The doji is a distinct trend change signal. However, the likelihood of a reversal increases if subsequent candlesticks confirm the doji’s reversal potential. Doji\r\n24\r\nsessions are important only in markets where there are not many doji. If there are many doji on a particular(prenominal) chart, one should not view the emergence of a new doji in that particular market as a meaningful development. That is wherefore candlestick analysis usually should not use intra-day charts of less than 30 minutes. Less than 30 minutes and many of the candlestick lines become doji or near doji Doji at tops A Doji star at the top is a warning that the uptrend is about to change. This is especially true after a long white candlestick in an uptrend. The reason for the doji’s negative implications in uptrend is because a doji represents indecision. Indecision among bulls will not maintain the uptrend. It takes the conviction of buyers to sustain a rally. If the market has had an extended rally, or is overbought, thence formation of a doji could mean the scaffolding of buyers’ support will give way. Doji are also valued for their ability to show reversal potential in downtrends. The reason may be that a doji reflects a balance between buying and selling forces. With ambivalent market participants, the market could fall due to its own weight. Thus, an uptrend should reverse but a falling market may hold its descent. Because of this, doji need more confirmation to signal a bottom than they do a top. What are support and resistance lines? Support and resistance represent spot junctures where the forces of supply and demand meet.\r\nThese lines appear as thresholds to price patterns. They are the respective lines which bumps the prices from decreasing or increasing. A support line refers to that level beyond which a stock’s price will not fall. It denotes that price level at which there is a decent amount of demand to stop and possibly, for a time, turn a downtrend higher. Similarly a resistance line refers to that line beyond which a stock’s price will not increase. It indicates that price level at which a qualified supply of stock is available to stop and possibly, for a time, head off an uptrend in prices. Trend lines are often referred to as support and resistance lines on an angle.\r\nSu pport A support is a horizontal floor where interest in buying a commodity is strong enough to overcome the pressure to sell. Support level is the price level at which sufficient demand exists to, at least temporarily, halt a downward movement in prices. logically as the price declines towards support and gets cheaper, buyers become more given to buy and sellers become less accustomed to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support.\r\n25\r\nSupport does not always hold true and a educate below support signals that the bulls have lost over the bears. A fall below support level indicates more willingness to sell and a lack of willingness to buy. A break in the levels of support indicates that the expectations of sellers are cut back and they are ready to sell at even lower prices. In addition, buyers could not be coerced into buying until prices declined below support or bel ow the previous low. Once support is broken, another support level will have to be established at a lower level ITC showing support and resistance\r\n confrontation\r\n26\r\nA resistance is a horizontal ceiling where the pressure to sell is greater than the pressure to buy. Thus a safeguard level is a price at which sufficient supply exists to; at least temporarily, halt an upward(a)s movement. Logically as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and prevent the price from rising above resistance.\r\nResistance does not always hold true and a break above resistance signals that the bears have lost over the bulls. A break in the resistance level shows more willingness to buy or lack of incentive to sell. Resistance breaks and new highs indicate that buyer’s expectations have increased and are ready to buy at even higher prices. In addition, sellers could not be coerced into selling until prices rose above resistance or above the previous high. Once resistance is broken, another resistance level will have to be established at a higher level.\r\nWhat Does a Technical indicator offer? Technical analysts use indicators to look into a different perspective from which stock prices can be analyzed. Technical indicators provide laughable outlook on the strength and direction of the underlying price action for a given timeframe. Why use indicators? Technical Indicators broadly serve common chord functions: to alert, to confirm and to predict. Indicator acts as an alert to study price action, sometimes it also gives a signal to watch for a break of support. A large positive divergence can act as an alert to watch for a resistance breakout. Indicators can be used to confirm other technical analysis tools. Some investors and traders use indicators to predict the direction of future prices. \r\nTips for using indicators There are a large number of Technical Indicators that can be used to assist you in selection of stocks and in tracking the right entry and exit points. In short, indicators indicate. But it doesn’t mean that traders should ignore the price action of a stock and focus solely on the indicator. Indicators just filter price action with formulas. As such, they are derivatives and not direct reflections of the price action.\r\nWhile applying the indicators, the analyst should consider: What is the indicator aspect about the price action of a security? Is the price action getting stronger? Is it getting weaker? The buy and sell signals generated by the indicators, should be read in context with other technical analysis tools like candlesticks, trends, patterns etc. For example, an indicator may flash a buy signal, but if the chart pattern shows a descending triangle with a series of declining peaks, it may be a false signal. An indicator should be sele cted with due care and attention. It would be a null exercise to cover more than five indicators. It is better(p) to focus on two or three\r\n27\r\nindicators and learn their intricacies inside and out. One should always choose indicators that complement each other, instead of those that move in unison and generate the same signals. For example, it would be redundant to use two indicators that are good for showing overbought and oversold levels, such as Stochastic and RSI. Both of these indicators measure impetus and both have overbought/oversold levels. Types of indicators Indicators can broadly be divided into two types â€Å" tip” and â€Å"LAGGING”. Leading indicators Leading indicators are knowing to lead price movements. Benefits of leading indicators are early signaling for entry and exit, generating more signals and allow more opportunities to trade. They represent a form of price momentum over a fixed look-back period, which is the number of periods used t o calculate the indicator. Some of the wellmore popular leading indicators embroil Commodity Channel Index (CCI), Momentum, sexual congress personnel Index (RSI), Stochastic Oscillator and Williams %R. Lagging Indicators Lagging Indicators are the indicators that would follow a trend rather then predicting a reversal.\r\nA lagging indicator follows an event. These indicators work well when prices move in relatively long trends. They don’t warn you of upcoming changes in prices, they simply tell you what prices are doing (i.e., rising or falling) so that you can invest accordingly. These trend following indicators makes you buy and sell late and, in exchange for missing the early opportunities, they greatly reduce your risk by keeping you on the right side of the market. Moving averages and the MACD are examples of trend following, or â€Å"lagging,” indicators. Oscillators Relative Strength Index (RSI) The RSI is part of a class of indicators called momentum oscill ators.\r\nThere are a number of indicators that fall in this category, the most common being Relative Strength Index, Stochastic, Rate of Change, Williams %R. Although these indicators are all calculated differently, there are a number of common elements to their use which shall be discussed in the context of the RSI. What is momentum? Momentum is simply the rate of change †the speed or slope at which a stock or commodity ascends or declines. meter speed is a useful gage of be change. For example, assume that you were riding in a friends’ car, not looking at what was happening ahead but instead just at the speedometer. You can see when the car starts to unbend down and if it continues to do so you can reasonably assume it’s going to stop very shortly. You may not know the reason for it coming to a stop…it\r\n28\r\ncould be the end of the journey, approaching and intersection or because the road is a little rougher ahead. In this manner ceremony the speed provides a guide for what may happen in the future. An oscillator is an indicator that moves back and forrard across a reference line or between prescribed upper and lower limits. When an oscillator reaches a new high, it shows that an uptrend is gaining speed and is likely to continue. When an oscillator traces a lower peak, it means that the trend has stopped accelerating and a reversal can be expected from there, much like a car slowing down to make a U-Turn. In the same way watching a stock for impending momentum change can provide a glimpse of what may happen in the future †momentum oscillators, such as RSI are referred to as trend leading indicators.\r\nThe chart below illustrates the typical construction of the RSI which oscillates between 0% and 100%. You will notice there is a pair of horizontal reference lines: 70% ‘overbought’ and 30% ‘oversold’ lines. The overbought region refers to the case where the RSI oscillator has moved into a regio n of significant buying pressure relative to the recent past and is often an indication that an upward trend is about to end. Similarly the oversold region refers to the lower part of the momentum oscillator where there is a significant amount of selling pressure relative to the recent past and is indicative of an end to a down swing. Application of RSI RSI is a momentum oscillator generally used in sideways or ranging markets where the price moves between support and resistance levels.\r\nIt is one of the most useful technical tool employed by many traders to measure the velocity of directional price movement. Overbought and Oversold The RSI is a price-following oscillator that ranges between 0 and 100. Generally, technical analysts use 30% oversold and 70% overbought lines to generate the buy and sell signals. ïÆ'Ëœ Go long when the indicator moves from below to above the oversold line. ïÆ'Ëœ Go short when the indicator moves from above to below the overbought line. bankers bil l here that the direction of crossing is important; the indicator needs to first go past the overbought/oversold lines and then cross back through them.\r\n29\r\n bullion Chart showing buy and sell points and also the failure in trending market What is the MACD and how is it calculated? The MACD does not completely fall into either the trend-leading indicator or trend following indicator; it is in fact a hybrid with elements of both. The MACD comprises two lines, the fast line and the slow or signal line. These are easy to identify as the slow line will be the smoother of the two. NIFTY chart below illustrates the basic MACD lines\r\nThe procedure for calculating the MACD lines is as follows: Step1. estimate a 12 period exponential lamentable average of the close price. Step2. imagine a 26 period exponential moving average of the close price. Step3. Subtract the 26 period moving average from the 12 period moving average. This is the fast MACD line. Step4. Calculate a 9 period exp onential moving average of the fast MACD line calculated above. This is the slow or signal MACD line. Sampling Plan The companies are selected from top 50 blue chip companies, and then fundamental analysis is done and then the technical analysis Limitations As we know that equity market is highly unpredictable and its really hard to predict the future trend of the equity so all the analysis that is done just gives the high probability of the trend that is going to happen, it does not give any surety.\r\n30\r\nCHAPTER 3: FINDINGS AND ANALYSIS\r\n3.1 Findings\r\nFundamental Analysis\r\n31\r\nTechnical Analysis SBI\r\nSBI-I\r\n32\r\nSBI â€II Chart SBI-I shows different support and resistance level for last two years. Chart SBI-II shows the morning star which is encircled.\r\n33\r\nJINDAL brace\r\nThe above chart shows inverted hammer with DOJI.\r\n34\r\nVOLTAS\r\nThe above chart shows two inverted hammer.\r\n35\r\nBHEL\r\nThe above chart shows inverted hammer with bullish candle.\r \n36\r\nHPCL\r\nThe above chart shows DOJI.\r\n37\r\n3.2 Analysis\r\nFundamental Analysis As we have analyzed from the list of companies on basis of fundamental rationality. It tells us the company on which we should invest. The companies are:-\r\nSBI\r\n38\r\nFrom the above figures one can come to following conclusion:ïÆ'¼ As a company should have high EPS and so is the case with SBI whose EPS is 256.11 ïÆ'¼ Its P/E ratio is relatively lesser than other companies ïÆ'¼ Positive PEG is a good sign. ïÆ'¼ P/B is less than 1 which says it is undervalued so its high time to buy shares of this company. ïÆ'¼ And on other grounds it has fair figures.\r\nBHEL\r\nFrom the above figures one can come to following conclusion:ïÆ'¼ EPS is relatively high as compared to its per share price. ïÆ'¼ Low P/E and P/S ratio which is always good. ïÆ'¼ Good dividend payout ratio, dividend and return on equity. HPCL From the above figures one can come to following conclusion:ïÆ'¼ EPS is re latively high as compared to its per share price. ïÆ'¼ Its P/E ratio is relatively lesser than other companies ïÆ'¼ P/B value is lesser which gives a clear indication that the prices will rise in future. ïÆ'¼ Dividend is relatively higher.\r\nTechnical analysis On the basis of technical analysis one can come to the following conclusion:SBI From the chart SBI-II its seen that there is formation of morning star which is a sign of trend reversal. And from here it is expected that it will go bullish. We can also see that RSI is in upward direction which indicates that it will go bullish and even MACD is in estimation of bullish nature. So it is very powerfully recommended that one should invest in this share and should hold as long as there is a sign of trend reversal. JINDAL STEEL As from the chart we have seen that inverted hammer has occurred long before followed by bullish candle which was the sign of buying but not it has reached to such a level at which it can reverse anyti me. The RSI is also high and MACD can anytime go for selling indication.\r\n39\r\nVOLTAS From the chart of Voltas it is very distinctly indicated that there are two inverted hammer and the hammer is followed by a green candle and thus we can say it has taken the bullish trend. We can also see that RSI is in upward direction which indicates that it will go bullish and even MACD is in favor of bullish nature. So it is very strongly recommended that one should invest in this share and should hold as long as there is a sign of trend reversal. BHEL From the chart of Bhel it is very clearly indicated that there is a inverted hammer followed by a green candle and thus we can say it has taken the bullish trend. We can also see that RSI is in upward direction which indicates that it will go bullish and even MACD is in favor of bullish nature. So it is very strongly recommended that one should invest in this share and should hold as long as there is a sign of trend reversal. HPCL From the ch art of HPCL there is formation of a DOJI candle which is one of the strongest sign of trend reversal and for bullish trend to come in. We can also see that RSI is in upward direction which indicates that it will go bullish and even MACD is in favor of bullish nature. So it is very strongly recommended that one should invest in this share and should hold as long as there is a sign of trend reversal\r\n40\r\nCHAPTER FOUR: CONCLUSIONS AND RECOMMENDATIONS\r\n4.1 thickset\r\nThis project is being done to construct portfolio of clients with the help of fundamental and technical analysis. Also analyze their portfolio by valuating those companies where they have already invested using specific valuation model. Then find out whether it is right time to invest in those companies using technical analysis. Also calculating the returns they are getting and suggest for higher return. As we can see we have come up with certain companies which have strong possibilities to do well. The different to ols and indicators play a very vital role in analyzing the companies as well as forecasting their price behavior.\r\n4.2 RECOMMENDATIONS AND CONCLUSION Recommendations\r\nThe final portfolio that I came up with is 1. SBI 2. JINDAL STEEL 3. VOLTAS 4. BHEL 5. HPCL\r\nConclusion\r\nIn this project we have found out that both the analysis fundamental and technical analysis can be used for the same purpose as to build a portfolio but they and completely different. One should not try to relate these two analysis with each other as it could lead to blunder. Both of the analysis are independent of each other. Both the analysis just gives a possibility that which option one should go for in case one wants to invest. It doesn’t confirms the result as they are just expected result.\r\n'