1.

1 Technical analysis and fundamental analysis are the two main schools of thought in the financial
markets, technical analysis looks at the price movement of a security and uses this data to predict its future
price movements. Fundamental analysis, on the other hand, looks at economic factors, known as
fundamentals. Let's get into the details of how these two approaches differ, the criticisms against technical
analysis and how technical and fundamental analysis can be used together to analyze securities.

These terms refer to two different stock-picking methodologies used for researching and
forecasting the future growth trends of stocks. Like any investment strategy or philosophy, both
have their advocates and adversaries. Here are the defining principles of each of these methods
of stock analysis:
• Fundamental analysis is a method of evaluating securities by attempting to measure
the intrinsic value of a stock. Fundamental analysts study everything from the overall
economy and industry conditions to the financial condition and management of
companies.
• Technical analysis is the evaluation of securities by means of studying 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 stock charts to identify
patterns and trends that may suggest what a stock will do in the future.

In the world of stock analysis, fundamental and technical analysis are on completely opposite
sides of the spectrum. Earnings, expenses, assets and liabilities are all important characteristics
to fundamental analysts, whereas technical analysts could not care less about these numbers.
Which strategy works best is always debated, and many volumes of textbooks have been written
on both of these methods. So, do some reading and decide for yourself which strategy works best
with your investment philosophy.

chart analysis

The default time frame for your stock chart analysis is based on your type of trading.

But whatever style of trading you have, stock day trading, swing trading stock or
position stock trading, you must analyze more than one type of chart.

Any time you analyze a stock chart, you need to see important levels of support or
resistance. If you look into one stock chart time frame only (say, a daily time frame)
and omit others, you are making a big mistake!

There is a solution.

Use three different stock chart time frames for your stock chart analysis.

• Your main time frame (like daily)

• One time frame with a longer scale (like weekly)
• One time frame with a shorter scale (like hourly or four hours))
typical time frames used by successful stock traders?

1. Daytraders

o Basic chart .... 15min , 30 min, hourly

o Longer one ... 240 min (4hours), daily
o Shorter one ... 5min , 15 min

2. Swing traders

o Basic chart .... daily

o Longer one ... weekly
o Shorter one ... hourly or 240 minute (4 hours)

3. Position traders:

o Basic chart .... weekly

o Longer one ... monthly
o Shorter one ... daily or 240 minute (4 hours)

1.2What Does Breadth Indicator Mean?

A specific type of indicator that uses advancing and declining issues to determine the amount of
participation in the movement of the stock market.
Breadth Indicators
Breadth indicators are powerful market indicators that require very intensive calculations.
They help us explain the movements of a stock index by examining the collective behavior of
its component stocks
Breadth Indicators

Breadth or Advance/Decline indicators are one of the major tools in analyzing the
indexes and exchanges. These indicators could be applied only to the basket of
stocks and cannot be used on a single stock. That is one of the reasons why stock
traders rarely use these technical studies, yet they are considered one of the best in
defining the trend reversal. These studies are based on the number and volume of
stocks from the basket of stocks that are moving up or down, and are making new
highs or new lows. The examples of these indicators could be Advance/Decline Line,
Advance/Decline Oscillator, TRIN, McClellan Oscillator, New Highs/Lows oscillator and
others. These indicators could be considered as combined indicators since they use
some price comparison (they define where the price heading) and some volume
characteristics (such as number of stocks and volume of stocks). Despite the fact
that Breadth indicators are considered as good predictors they are not very popular
doe to the limited number of these indicators providers. Due to the complex
calculation, there are only a few Breadth Indicator providers for indexes and
exchanges.

Sentiment indicators attempt to gauge the over all mood of the market.
Generally speaking when a sentiment indicator shows an abundance of
optimism, investors are wise to approach that market with a higher degree of
caution. In fact, optimists are potential sellers and pessimists are potential
buyers and therefore sentiment indicators can point to major turning points in
the market. Traders who rely on sentiment indicators feel that the higher the
level of anxiety in the market, the closer the market is to actually bottoming.

The put/call ratio is a common sentiment indicator. A put option gives the
purchaser the right, but not the obligation, to sell a security for a certain price
by a specific time. A call option gives the buyer the right, but not the
obligation, to buy a security for a certain price by a specific time. An extremely
high put/call ratio indicates fear in the market since significantly more investors
are betting on a downturn rather than an upturn. An extremely low put/call ratio
indicates an abundance of optimism as investors are aggressively betting on
future stock market gains.

The Volatility Index (VIX) is another sentiment indicator: a high VIX reading
indicates high volatility and tends to occur when fear is prevalent in the market
whereas a low VIX reading indicates complacency which is typically
associated with stock market tops.
There are many different sentiment indicators in the market

1. CBOE Volatility Index (VIX) – VIX is often referred to as the fear index. Based on
option prices, VIX increases when investors buy put options to insure their portfolios
against losses. A rising VIX indicates an increased need for insurance. By looking
for spikes in the index, we can identify moments where fear has overwhelmed the
market, giving us the opportunity to buy stocks at reduced levels
2. 2. NYSE High/Low – This is calculated as the number of stocks at 52-week highs
minus the number at 52-week lows. When price swings reach extremes, we expect
to see spikes in this ratio.
3. 3. NYSE Bullish Percentage – This measures the percentage of stocks on the New
York Stock Exchange (NYSE) that are in bullish technical patterns based on point
and figure graphs. In a normal market we would expect this metric to range between
40 and 60%, as some strong stocks are offset by weaker ones. When the number
travels too far to either extreme, it indicates markets are either overbought (greater
than 80%) or oversold (less than 20%).
4. 4. NYSE 50-day moving average – This is a measure of the percentage of NYSE
stocks trading above their 50-day moving average (MA). Stocks above the 50-day
 MA are indicative of a rising market. As with the NYSE bullish percentage, look for
extreme readings as an indication that the market is ether overbought or oversold.
5. 5. NYSE 200-day moving average – This is a measure of the percentage of NYSE
stocks trading above their 200-day moving average (MA). The longer the MA the
more weight it should be given.
2.1
Efficient markets are markets in which the flow of relevant information regarding investment
options is easily accessed and reliable. In a market situation of this type, anyone who is
involved in trading activity is able to make use of the information to assess the past
performance of the security in question. The trader can also accurately identify the reasons
for the current unit price and responsibly project the future performance of the security, based
on current indicators. In an efficient market, there are usually a large number of active traders
functioning in the marketplace. A given trader may actively buy securities and sell other
securities at the same time, based on the strength of the current unit price and projections on
how the securities will perform in both the short term and the long term. One of the
advantages of an efficient market is that there is no real incentive to initiate arbitrage
transactions in order to build a strategy to make a decent return. The detail of existing
information is such that it is relatively easy to minimize the difference between projected
return and the degree of risk involved. When an efficient market exists, the quality of the
information available is highly accurate. The details are analyzed thoroughly, broken down in
a manner that both the investor and the broker can readily assimilate, and are being used by
many investors to effect trades in the marketplace.

It is useful to distinguish three levels of market efficiency, weak form

efficiency, semi-strong form efficiency, and strong form efficiency.

The weak form efficient market hypothesis says that the current price of a
stock reflects all information found in the record of past prices and volumes.
This means that there is no relationship between the past and the future price
movements.

The semi-strong form efficient market hypothesis holds that stock prices
adjust rapidly to all publicly available information. This implies that using
publicly available information investors cannot earn superior risk-adjusted
returns.

The strong form efficient market hypothesis holds that all available
information, public or private, is reflected in stock prices. Obviously this
represents an extreme hypothesis and we would be surprised if it were true.

The validity of the hypothesis has been questioned by critics who blame the belief in rational
markets for much of the financial crisis. Defenders of the EMH caution that conflating market
stability with the EMH is unwarranted; when publicly available information is unstable, the
market can be just as unstable

An efficient market does not completely remove the element of risk from any type of trading
activity, trades made within a market of this type are generally considered to be less volatile
in nature, assuming unforeseen factors do not significantly alter the general climate of the
marketplace.
 2.2

Three types of tests have been commonly employed to empirically verify the
weak form efficient market hypothesis: (1) serial correlation test; (2) runs
tests; and (3) filter rules tests. By and large these tests have been
overwhelmingly in favor of the weak form efficient market hypothesis.

serial correlation
Thecorrelationof avariablewith itself over successive timeintervals.Technical analystsuse serial correlation to
determine how well the pastpriceof asecuritypredicts the future price.also calledautocorrelation.

Successive values in time series are often correlated with one another.
This persistence is known as serial correlation and leads to increased
spectral power at lower frequencies (redness). It needs to be taken into
account when testing significance, for example, of the correlation
between two time series. Among other things, serial correlation (and
trends) can severely reduce the effective number of degrees of freedom
in a time series. Serial correlation can be explored by estimating the
sample autocorrelation coefficients

Runs test

The analysis of runs within a sequence is applied in statistics in many

ways The term run may in general be explained as a succession of items of
the same class. Many concepts to analyze runs in a series of data have been
studied. The main concepts are based on (i) the analysis of the total number
of runs of a given classand (ii) examinations about the appearance of long
runs
For example, a list of truly random single-digit numbers should only have a few instances
where a sequence of numbers is ascending numerically. However, in many cases, it is
difficult to assert the randomness of data in which there are thousands of sequences in a
string of data, so the runs test was created as an objective method of determining
randomness.

The runs test model is important in determining whether an outcome of a trial is truly
random, especially in cases where random versus sequential data has implications for
subsequent theories and analysis.

Filter rules tests

The evidence for weak form efficiency is not, obvious as it seems.the earlier studies
understates filter rule returns relative to buy and hold and to do a poor job of selecting
 possible winners .in addition these tests did not have statistical confidence bounds for judging
significance

3.1
Strategic asset allocation is an approach to investing that involves making conscious
selections regarding the types of assets that will be part of the investment portfolio. This
systematic approach to buying and selling investments is usually based on the short-term and
long-term financial goals set in place by the investor. The goal is to generate the most
revenue while at the same time keeping the level of risk to the investor as low as possible.

Step by step procedure in developing a strategic asset allocation for private individuals

1.Gather complete diagnostic information

Understand life cycle details
Determine client goals and priorities
Assign cash flows and time lines to each goal
Classify current assets and liabilities
Include current and future cash flows
2.perform risk allocation and asset allocation ,portfolio constructions
Categorize and evaluate current state
Make intuitive adjustments
3.compute likelihood of achieving goals using
Scenario analysis
4.readjust
Risk allocation
Client goals and cash flows
5.repeat steps 2 to 4 till success and optimum balance are achieved
6.check robustness of solution to market and client risk factors
Market risk factors:crash
Client risk factors:inflation
7.implement
8.review and readjust as needed

3.2

Aninvestmentapproach in which aninvestorusesa variety

offorecastingandassumptiontechniquesto determine whichsecuritiestopurchaseinorderto achieve
ahighreturn. Unlike thebuy and holdstrategy, an adherent to anactiveportfoliostrategy is more
likely tobuyandsellsecurities with greaterfrequenciesas the investor seeks to move
availablecapitalinto moreprofitablestocks.

Market timing the purchase of stocks in the stock market would by default reduce the
subsequent holding period of the stocks held in the portfolio with the expectation of a reasonable
expectation of return at the point of sale, with the advantage of the financial resources again
being available to be applied with regard to other stocks which may provide both opportunities of
purchase as well as a fair margin of safety at the point of their subsequent purchase. This would
also result in the turning over of the investment capital during the financial period in which this
strategy is implemented.

Sector rotation would require an understanding of the segregation of the various stocks into
appropriate industries and service sector groups. The investor may now consider short listing the
top three to five corporate entities from each of the lead industries and service sector groups for a
further study to decide whether the stocks short listed are of investment grade. Thereafter, the
investor would be required to move the investment capital from one industry and/or service sector
group to another depending on the availability of a fair margin of safety while engaging such
stocks and adequate profits while disengaging from them.

Stock selection would require a short listing of the investment grade stocks for analysis based
on fundamental parameters to confirm their present status of being investment worthy. A further
study to check and confirm whether the current market price of such stocks is below its intrinsic
value and offer a fair margin of safety; this may also require the application of technical tools to
reconfirm a probable oversold condition at the time of such analysis.

Stock selection would require a short listing of the investment grade stocks for analysis based
on fundamental parameters to confirm their present status of being investment worthy. A further
study to check and confirm whether the current market price of such stocks is below its intrinsic
value and offer a fair margin of safety; this may also require the application of technical tools to
reconfirm a probable oversold condition at the time of such analysis.

4.1

Portfolio revision

Portfolio management would be an incomplete exercise

without periodic review.

The portfolio, which is once selected, has to be continuously reviewed over a period of time and if
necessary revised depending on the objectives of investor.

Thus, portfolio revision means changing the asset

allocation of a portfolio.

Investment portfolio management involves maintaining proper combination of securities, which

comprise the investor’s portfolio in a manner that they give maximum return with minimum risk.

For this purpose, investor should have continuous review

and scrutiny of his investment portfolio.

Whenever adverse conditions develop, he can dispose of

the securities, which are not worth.



However, the frequency of review depends upon the size of the portfolio, the sum involved, the
kind of securities held and the time available to the investor.

The review should include a careful examination of investment objectives, targets for portfolio
performance ,actual results obtained and analysis of reason for variations.

The review should be followed by suitable and timely action

Investors buy stock according to their objectives and

return-risk framework.

These fluctuations may be related to economic activity or

due to other factors.

Ideally investors should buy when prices are low and sell when prices rise to levels higher than
their normal fluctuations.

The investor should decide how often the portfolio should

be revised.

If revision occurs to often, transaction and analysis costs

may be high.

If revision is attempted too infrequently the benefits of

timing may be foregone.

The important factor to take into consideration is, thus,

timing for revision of portfolio

techniques

Passive management

1.process of holding a well diversified portfolio for long term with the buy and hold approach

2.it also refers to the investors attempt to construct a portfolio that resembles overall market
returns

EX.if reliance industry’s stock constitute 5% of the index .fund also invests of 5% of its money in
reliance stock

Active management

1.Holding securities based on the forecast about the future

2.Portfolio managers vary their cash position or beta of the equity portion of the portfolio based on
market forecast

EX.IT or FMCG industry stocks may be given more weights than their respective weights in the
NSE-50

3.Formula plans

The formula plans provide the basic rules and regulations for the purchase and sale of securities

These predetermined rules call for specified actions where there are changes in the securities
market

In this ,the investor divide his investment funds in to 2 portfolios i.e., one aggressive ( equity
shares ) and other conservative or defensive ( bonds & debentures )