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Shabbir is a developer in the field of Applications, web as well as database designing and is devoted to the optimization and usability of the code. Apart from doing some Share trading he maintains SEO forum and is a C++ addict.

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Technical Analysis – The Ultimate Guide to Investing

March 10th, 2010 • Related • Filed Under

These days I have been doing lot of reading and some of the books that I went through were on Technical Analysis of stocks and I have learnt a very good and effective technique for making informed decision in equity market about when you should off load your portfolio and when you should buy.

So let’s begin with an example.

In this analysis we will be using 2 technical indicators

  1. 50 Day Simple Moving Average (Red Line)
  2. 200 Day Simple Moving Average (Green Line)

Yahoo Finance provides both and so here is a Nifty chart for last 5 years,

Now follow the table and see how you can predict the future.

Pattern Indicator
1 Red Line is Above Green Line Sign of Bullish pattern. If the trend is not long enough it’s better to do smart investment.
2 Green Line is Above Red Line Sign of Bearish Pattern and if you are still heavy in stock market its time to re-look at your stocks.
3 Red Line is Above Green Line but crossing down This is the best time to move out of stock market and go on for a vacation.
4 Red Line is Below Green Line but crossing over Relax. Time has come to think equity as a way of investment and creating wealth.

How this can help?

This time round I will not do the calculation for you but I will ask you to do it for your stock and see how close is your 50 DMA with 200 DMA is?

Choose your favourite stock or even a fund. Then get the historical value of that fund or stock using any such charts like Yahoo / Google.

Now just try to apply this to your situation. Assuming you did some investment in mid 2007. Now start following the above table which suggest you should sell your funds in April 2008 and then buy again back in April 2009 and see for yourself how much money you could have saved :( if not make.

So now you are feeling sad that we have this after the losses and not before it and so now you think “I don’t believe in History. Show me something for today.”

Remember History teaches you a lot and so now it is all about applying.

See if you any of your stock has 50 DMA very close to 200 DMA today. If there is see if there is any decisive crossing of the DMA’s. If it is now you know its time for the application of your lesson learnt from history?

For me Dish TV DMA’s are very close. So if I sell Dish TV before doing a posting now you should know why? :(

Don’t you think just one example is not just good enough for any study to conclude.

I do think that way but believe me I have tested this theory on all my list of stocks, funds and even on all indexes I can think off.

Second Example

We have very less data for Nifty when it comes to charts in Yahoo and so I will demonstrate this on Dow Jones on some random time and see how you can predict more easily your golden time to buy and sell stocks.

You can see lots of arrows and let us call them Pivots.

When you buy at first pivot and sell at second you actually make a loss but that is actually not loss in true sense but it proves to be a stop loss and you are saved from a sharp downturn.

Third pivot again proves to be a point of handsome returns but when it comes to 4th and 5th pivots there is nothing much to choose from.

I can just go on and on showing you examples after examples but instead of me doing that why don’t you try finding something for your stock where the above theory has failed. Let’s try it.

If you are curious to know about the name of the books I have been following recently here they are.

Remember it’s never too late to have an extra book in your library.

What next?

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There Are 21 Responses So Far. »

  1. Comment by bhupinder on 15 March 2010:

    the result are good it is good to apply the observation during trading hrs to get good profits.

  2. Comment by sharath on 15 March 2010:

    Hi,

    I guess there is a typo with the last(4th) pattern

  3. Comment by Shabbir Bhimani on 16 March 2010:

    Sharath, Can you suggest where?

  4. Comment by Marshal on 18 March 2010:

    typo is here
    “Green Line is Below Green Line but crossing over”

  5. Comment by khalid on 18 March 2010:

    Nice explanation about 50 DMA and 200 DMA. Thanks for sharing. Now I myself can predict about the movement of any particular stock by applying your four points.

  6. Comment by Shabbir Bhimani on 19 March 2010:

    @Marshal, Thanks for pointing that out and its now corrected.

    @Khalid, Good to see that and see how I applied in on my stock – http://shabbir.in/practical-application-of-technical-analysis/

  7. Comment by Marshal on 20 March 2010:

    thanks shabbir for correction.
    Is there any way to find out support level for scrip?

  8. Comment by Shabbir Bhimani on 20 March 2010:

    Marshal, Have you seen http://shabbir.in/calculate-stop-loss-target-level/

  9. Comment by vijay anand on 22 March 2010:

    Thanks Shabbir for your valuable explanation. Could you let me know from which website your using for charts as shown above.

  10. Comment by rahul on 22 March 2010:

    Where can I find the chart to do technial anaysis? Is technical anaysis for mutual fund possible in this chart?i want to do technical anaysis for UTI Infra advantage mutual fund
    Would approciste if the address of the site is provided

  11. Comment by Shabbir Bhimani on 22 March 2010:

    Vijay, Its mentioned in the post and its Yahoo Finance.

  12. Comment by vijay anand on 22 March 2010:

    Shabbir, As mentioned looked in yahoo finance and Google finance the chart looks different.

    I mean the look and feel is different, not the same as shown above.

  13. Comment by vijay anand on 22 March 2010:

    Sorry for the confusion. i got it now.

    i looked the same stok in http://in.finance.yahoo.com/q?s=IDEA.NS

    (where there is no interactive chart)

    later looked into

    http://finance.yahoo.com/echarts?s=IDEA.NS#chart1:symbol=idea.ns;range=5y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefined

    where look and feel is same

  14. Comment by vijay anand on 22 March 2010:

    it would help full in case you could give us sector wise good stocks.

    Also, need to know about option premium calculation. how to calculate correct option premium price with right examples.

  15. Comment by Shabbir Bhimani on 23 March 2010:

    Vija, I do not discuss stocks often

  16. Comment by TS on 18 May 2010:

    Hi Shabbir,

    Excellent post specially for a beginner to choose the stocks.

    Can you please drop another post how to find a stock touching 52-week high or low?

  17. Comment by Shabbir Bhimani on 19 May 2010:

    TS, Any charts on Yahoo Finance will give you that.

  18. Comment by Ketan on 21 May 2010:

    Hi Shabbir,

    Recently i read about STP (systematic transfer plan) but was confused as it has very little information… it also says that its good investment in the current market scenario… will you pls. provide me with complete information about this product and how to invest in it.

    Thanks

    Ketan

  19. Comment by Shabbir Bhimani on 21 May 2010:

    Ketan, It is something where you transfer from one fund to other on a regular basis

  20. Comment by Ketan on 21 May 2010:

    Hi Shabbir,

    Thanks for the reply say for eg. i want to invest (STP) in Canara Robeco Equity Tax Saver what should be my investing strategies…

    Thanks

    Ketan

  21. Comment by Shabbir Bhimani on 21 May 2010:

    STP should be in 2 funds and move out of one and move into other depending on the market condition or investment needs.

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