Home
Account Login
Not Logged In
☰
  • Trade Now
  • About Us
    • Why Choose us
      • About Kotak Securities
      • Awards and Accolades
      • About Kotak Group
      • Technology
      • Strong Research
      • Ease of Use
      • Service
      • Testimonials
    • Media
      • Press Release
      • Corporate Profile
      • Media Kit
    • Careers
      • NISM Course
      • Current Openings
      • Leadership Speaks
      • Recognition
      • Work Culture
  • Offerings
    • Asset Classes
      • Equity
      • Derivative
      • MF
      • IPO
      • ETF
      • Nifty ETF
      • Currency Derivatives
      • Tax Free Bonds
      • Gold ETF
      • Stock Lending & Borrowing (SLBM)
      • Interest Rate Futures
      • Commodity
    • Trading Tools
      • Website
      • KEAT PRO X
      • Kotak Stock Trader
      • Smallcase
      • Fastlane
      • Xtralite
      • Dealer assisted trading
      • Call and Trade
      • TradeSmart Store
      • TradeSmart Derivatives
      • TradeSmart Insights
      • TradeSmart Trends
      • Chat To Trade
    • Account Types
      • Demat Account
      • EquityTrading Account
      • 2 in 1 Account
      • Trinity Account
      • Linked Account
      • NRI Account
      • Foreign Investors (QFI)
      • PMS
      • Private Client Group (PCG)
      • Pearl Account
    • Brokerage Options
      • Free Intraday Trading
      • Dynamic Brokerage
      • Fixed Brokerage
      • Advance Brokerage
      • NRI Brokerage Plans
      • Shubh Trade
    • Value Added Features
      • Refer and Earn
      • Track External Investments
      • WillSecure
      • Margin Calculator
      • Autoinvest
      • Margin Trading Facility
      • Super Multiple
      • BNST
      • Portfolio Tracker
      • SMS Alerts
      • Indicators and Technical Charts
      • Capital gain report
      • Stock as Margin
      • AMO
  • Markets
    • Market Indices
      • Indian Indices
      • Global Indices
    • Equities
      • Share Market Live
      • Gainer
      • Loser
      • Most Active Stocks
      • Volume Buzzer
      • 52Wk High
      • 52Wk Low
    • Derivatives
      • Derivatives Overview
      • Most Active Contracts
      • Gainers
      • Losers
      • Most Active Put
      • Most Active Call
      • Open Interest
      • Highest in Premium
      • Put Call Ratio
      • Historic Data
    • News
      • All News
      • Bullion News
      • Economic Growth
      • Economy General
      • Other News
    • Currencies
      • FII & DII Activities
      • Event Calendar
      • Announcements
      • Recent Deals
        • Block
        • Bulk
    • Currencies
    • FII & DII Activities
    • Event Calendar
    • Announcements
    • Recent Deals
      • Block
      • Bulk
  • Research
    • Live Research Calls
      • Fundamental Call
      • Technical Call
      • Derivatives Call
      • SIP Call
      • Top Monthly Picks
      • Pick of the Week
      • Consensus
      • Research Success Rate
    • Kotak Research Centre
      • Investors Research
      • Trader Research
      • Mutual Fund Research
      • Nifty Call of the Day
    • Latest Research Reports
      • Buyback
      • Stock Recommendations
      • Trading Recommendations
      • Sector research and updates
      • Market strategy research
      • Derivatives strategy
      • Currency and forex insights
    • Research Events
      • Annual Investor
        Conference 2018
      • Research webinars
    • Sample Research Reports
      • Fundamental
      • Technical
      • Derivatives
      • Currency Derivatives
  • Knowledge Bank
    • Kotak University
    • Union Budget
    • Aadhaar Card
    • Equity Trading
    • Derivative Trading
    • Intraday Trading
    • Mutual Funds
    • Financial Planning
    • Pan Card
    • Voter ID
    • Driving License
    • Income Tax
    • Calculators
    • Videos
    • Meaningful Minutes
    • Articles
  • Help
    • Contact Us
      • Branch Locator
      • Open an Account
      • Activate an account
      • Check Application
        Status
      • FAQs
    • Demos
    • Forms
    • Chat
  • Franchisee
    • Overview
      • Login
      • Partner with us
      • What is a Franchisee?
      • How to become a Franchisee?
      • Broker v/s Sub-Broker
      • Business Models
    • About Us
      • Why Join Us?
      • Partner Success Stories
    • Business Models
      • Business Support
      • Training & Events
      • Tools & Software
    • Contact Us
      • FAQs
Home » Research » Investment Knowledge Bank » Fundamentals of Technical Analysis
Research: Knowledge Bank
  • Kotak Research Center
  • Sample Research Reports
  • Technical Analysis of Stocks
  • Stock Charts
  • Stock Market Analysis

Chapter 8.2: Using Technical Indicators to Analyse Stocks

Now that we have understood the basics of technical analysis, let us move on to the actual implementation. In this section, we will learn how to do technical analysis of stocks based on the study of certain technical indicators. We will discuss how these technical indicators can be seen on stock charts and what how to implement these. Then, we will move on to understanding some important theories of technical analysis. All the fundamentals of technical analysis are based on these theories. Let’s first start by learning how to do technical analysis of stocks.

How to do technical analysis of stocks

To put it in an easy way, you are looking for patterns in a stock chart that will explain how its price will move next. For this, you will use some qualitative and quantitative techniques. These are called technical indicators. The qualitative indicators used for technical analysis aim at finding support and resistance levels. Quantitative concepts, on the other hand, aim to study price patterns to identify whether a stock is in an upward trend or a downward trend. Accordingly, you can select whether to buy the stock or not. They include moving averages and momentum indicators.





What are the key aspects of Technical Analysis

We have discussed quantitative techniques in the previous section. In this section, we will understand how to do technical analysis of stocks based on qualitative indicators. Here are some of the important qualitative indicators:

  • Supports and resistances:


  • Every house has a ceiling and floor, which supports you from the bottom. Alternatively, you cannot go above the ceiling (assume there is no terrace). So, the ceiling restricts your movements. Similarly, Technical analysis theory believes that there is a glass ceiling (top) and a glass floor (bottom) in every stock chart. Stock prices move only between these two levels unless there are major breakouts.
  • When the ceiling is reached, a stock will not appreciate any further. If you are in possession of the stock, you should sell it immediately. This glass ceiling is called resistance. Similarly, there is also a minimum price level, below which the stock will not fall. This level is called resistance. Every time the stock falls to this low, it will bounce back. As a result, you want to buy at this price.
  • Successful investors are able to pick these technical indicators accurately. They buy a stock when it is close to its support and sell it when it is approaching its resistance. These supports and resistances are not constant over the long term and keep changing. Supports and resistances keep moving higher or lower.
  • Supports and resistances are created because investors act in packs. When they think a stock is good, they all scramble to buy it and when a stock is bad and should be sold, they sell it. This tendency is called herd mentality. Buying in bunches prevents prices from falling beyond a level. Similarly, selling in packs prevents the price from rising beyond the resistance. You should try to spot supports and resistances by looking at stock charts and finding points where prices have stagnated or reversed after rising/ falling for some time. You should look out for what happens when these price points are reachedin the future.

  • Change in polarity principal:

    So, what happens when supports and resistances are breached? Since investor activity is so high at these levels, a breach means that investors are not interested in buying and selling them anymore. This leads to prices moving violently. Once a support is breached, stock prices tend to enter a freefall zone. They form new supports. Similarly, when resistances are broken, prices tend to shoot up and form new resistances. According to the change in polarity principal, every time a support is breached it becomes a resistance. Likewise, every time a resistance is breached, it becomes a support for the future. You must watch out for prices when they are around a support or resistance zone and act upon any breach instantly.

  • Chart patterns:

    You must also watch out for some other important chart patterns that reveal where the stock price will head next. These patterns are classified into reversal and continuation patterns. Reversal patterns indicate that a trend that was guiding the stock price till now has ended. Now, the stock will move in the reverse direction. So, if the stock was appreciating it will fall, and vice versa. Important reversal patterns include head and shoulders, inverse head and shoulders and, double tops and double bottoms.

    Continuation patterns are a confirmation that the present trend will continue. You must keep holding on to your stocks if they are rising or, sell them at once if they are falling. Important continuation patterns include triangle pattern, rectangle pattern and flags and pennants. We will discuss these patterns in the section on chart patterns.

Fundamentals of technical analysis

Technical analysis, like all other disciplines of note, has its own body of knowledge. Two theories are considered to be the foundation of technical analysis—the Dow Theory and the Elliot Wave Theory. Most of the fundamentals of technical analysis that you will read about in subsequent sections emanate from these. Understanding these theories is important before we progress in our quest to learn technical analysis of stocks.

  • Dow Theory: The Dow Theory is considered to be the foundation of technical analysis. It was derived from several articles written by Charles H. Dow in the Wall Street Journal between 1900 and 1902. However, Dow was not able to complete his work in his lifetime. William Peter Hamilton, Robert Rhea and E. George Schaefer took over and gave his work the form of a theory. The Theory classifies market trends into primary, secondary and minor. The primary trend lasts for one to three years and contains, within it, several secondary trends. Secondary trends have a life of only a few months. Minor trends last for under a week. Many minor trends join to form a secondary trend.
    Each consists of three phases. In accumulation phase, only the technically aware, professional investors buy a stock. This is usually against the general public opinion and therefore doesn’t affect the price much. In the second phase, other investors also become aware of the stock’s worth and start buying it. This drives its price up, and is called the public participation phase. Finally, prices become so unrealistically high that informed investors start exiting the stock. They feel that the top has been reached and a fall is coming up. This phase is called the distribution phase. All market trends consist of these phases. These phases are largely caused by new information, which gets reflected in prices instantly because all investors become aware of it and apply it to investing.
    According to Dow’s Theory, for a trend to be real, market movements should supplement each other. This is because most stocks are related to each other in some way. If one moves up, the other should too. If this doesn’t happen, it is a sign that a trend is not stable. You should then consider a reversal in the trend to be imminent. The last part of the Dow Theory is that market trends should be believed to continue unless there is a clear sign of a reversal. Speculation distorts prices for some time. Unless there is a clear sign of reversal, stock prices will not change from the existing market trend for long.
  • Elliott Wave Theory:
    The Elliott Wave Theory was proposed by R.N. Elliott in 1938. This Theory is largely based on Charles Dow’s work. In the Theory, Elliott proposes that stock markets move in cycles that repeat themselves and called them cycles’ waves. To predict price movements, we must understand the pattern of these waves and locate our current position on them.
    According to Elliott, waves are of different magnitude. Each wave contains a series of sub-waves. The largest wave is called the Grand Super cycle. It takes centuries to get completed. There are many super cycles in it, which contain other smaller wave patterns. The smallest cycle is the ‘subminuette’. It only takes minutes to complete.

    These cycles, put together, account for the up-moves and down-moves in the market. According to the Theory, market trends—both bull (upward) and bear (downward) market—are a combination of five Waves. He named these waves differently for bull markets and bear markets. The combination of these five Waves is referred to as an ‘impulse Wave’. When the markets have moved substantially in one direction and the pattern is complete, the direction of the movement reverses. An upward moving stock will fall and vice versa. This is called a ‘corrective wave’ or a correction. A corrective move is a combination of three waves.

    In case of a bull run, i.e. an upward market trend, Elliott describes the impulse wave as a combination of five moves—up, down, up, down, up, in that sequence. This is the pattern in which stock prices move up. However, down moves are small. They end with the price falling less than in the previous fall. This can be seen in the figure below. The first section of the figure illustrates a bull market impulse wave. Once the sequence of five is complete, the corrective move kicks in. It is a combination of three Waves—down, up, down. This can be seen in the second section of the figure. When the correction is complete, a different wave will guide future prices.




    Spotting market patterns is the key to success in Elliott wave-based trading. This is a very tricky art to master. It requires extensive study and practice. Decoding Elliott Waves involves use of complex mathematical concepts.He relied upon a method based on the Fibonacci sequence and the ‘golden ratio’.

What next?

In the next section, we will explore the concept of intrinsic value, which is central to fundamental analysis. We will see why technical analysis rejects it and why are the alternatives it presents better. click here.

Revenue & Expense Analysis How Companies and Industries Work Intrinsic Value of Stocks
Fundamental Analysis of Indian Stocks
Technical Analysis of Stocks Understanding Stock Market Trends
Asset & Liability Analysis
What is Accounting How to Identify Market Trends
Fundamental and Technical Analysis
Cash flow Statement Stock Charts in Technical Analysis
Perform Fundamental Analysis of Stocks Balance Sheets How to Read Stock Charts
Fundamentals of Industry Analysis
Relation between Stock Price and Dividends Intraday Trading Guide for Beginners
Business Models Company Annual Reports Difference Between Intraday and Delivery Trading
Fundamentals of a Company
Income Statements How to choose stocks for intraday trading
Cost of Intraday Trading Intraday Indicators and Techniques Financial Statement Analysis
Stakeholder Rights Stock Valuations through Financial Ratios Intraday Trading Tips
Previous Chapter Next Chapter
Trading Demos
  • Mobile Trading with Kotak Stock Trader View Demo
  • Desktop Trading with KEAT ProX View Demo
2014661828285397187587
Register for our TradeSmart Services
How it helps
  • Use existing bank account
  • Convenience through partnerships
  • Kotak Securities support


Stock Market Sectors :        A | B | C | D | E | F | G | H | I | J | L | M | N | O | P | R | S | T | V | W |

About Us

  • • Branch Locator
  • • About Kotak Securities
  • • Awards and Accolades
  • • About Kotak Group
  • • Technology
  • • Strong Research
  • • Customer Support Chat
  • • Brokerage Charges

Asset Classes

  • • Equity Trading
  • • Derivative Trading
  • • Mutual Fund Investment
  • • IPO
  • • Gold Funds
  • • Currency Derivatives
  • • Fixed Deposits & Tax Free Bonds
  • • Debentures

Derivatives Market

  • • Most Active Contracts
  • • Gainers
  • • Losers
  • • Top Volume Traded
  • • Top Value Traded
  • • Most Active Put
  • • Most Active Call
  • • Open Interest
  • • Highest in Premium
  • • Put Call Ratio

Investment Knowledge Bank

  • • Share Market Basics
  • • What is Demat Account
  • • What are Derivatives?
  • • What are Futures?
  • • What are Options?
  • • What are Mutual Funds?
  • • Basics of Financial Planning
  • • Calculators
  • • Videos
  • • Meaningful Minutes

Trading Tools & Research Reports

  • • KEAT PRO X
  • • Kotak Stock Trader APP
  • • Fastlane
  • • Xtralite
  • • Dealer assisted trading
  • • Call and Trade
  • • Investors Research
  • • Trader Research
  • • Mutual Fund Research
  • • Fundamental Analysis Reports
  • • Technical Analysis Reports
  • • Derivative Reports
  • • Currency Derivative Reports

Account Types & Value Added Services

  • • Demat Account
  • • 2 in 1 Account
  • • Trinity Account (3-in-1 Account)
  • • Linked Account
  • • NRI Account
  • • PMS
  • • Margin Trading
  • • BNST
  • • TradeSmart Store
  • • SMS Alerts
  • • AMO

Equity Market

  • • Share Market Live
  • • Gainer
  • • Loser
  • • Most Active Stocks
  • • Volume Buzzer
  • • 52Wk High
  • • 52Wk Low
  • • All Market News
  • • Bullion News
  • • Economy General
  • • Corporate Actions
  • • Other News
CUSTOMER CARE TOLL FREE

1800 209 9191 / 1860 266 9191

Mon to Fri – 8.00 AM TO 6.00 PM
Sat – 9.00 AM to 2.00 PM
To dial from Mobile phone add city STD code

Existing customers can send in their grievances for Trading account to service.securities@kotak.com
& Demat account to ks.demat@kotak.com

Connect with us

No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account.

KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary. Attention Investors Prevent Unauthorized Transactions in your demat / trading account --> Update your Mobile Number/ email Id with your stock broker / Depository Participant. Receive information of your transactions directly from Exchanges on your mobile / email at the end of day and alerts on your registered mobile for all debits and other important transactions in your demat account directly from NSDL/ CDSL on the same day." - Issued in the interest of investors. Circular No.: NSDL/POLICY/2014/0094, NSE/INSP/27436, BSE - 20140901-21

Kindly note that as per NSE circulars nos: NSE/INVG/36333 dated November 17, 2017, NSE/INVG/37765 dated May 15.2018 and BSE circular nos: 20171117-18 dated November 17, 2017, 20180515-39 dated May 15.2018, trading in securities in which unsolicited messages are being circulated is restricted. The list of such stocks are available on the website of NSE & BSE. In case of any queries, request you to kindly get in touch with Customer Service on 18002099191/9292

Kotak Securities Ltd. bearing licence no. CA0268 is a Corporate Agent of Kotak Mahindra Old Mutual Life Insurance Ltd. We have taken reasonable measures to protect security and confidentiality of the Customer Information.

The Stock Exchange, Mumbai is not in any manner answerable, responsible or liable to any person or persons for any acts of omission or commission, errors, mistakes and/or violation, actual or perceived, by us or our partners, agents, associates etc., of any of the Rules, Regulations, Bye-laws of the Stock Exchange, Mumbai, SEBI Act or any other laws in force from time to time.
The Stock Exchange, Mumbai is not answerable, responsible or liable for any information on this Website or for any services rendered by our employees, our servants, and us.

Filling complaints on SCORES- Easy & Quick

a. Register on SCORES portal  |  b. Mandatory details for filling complaints on SCORES  i. Name, PAN, Address, Mobile Number, E-mail ID  |  c. Benefits:  i. Effective Communication  ii. Speedy redressal of the grievances

Charges for Other Services  |  Disclaimer  |  Sitemap  |  Privacy & Security  |  256 Bit Encryption  |  BSE  |  NSE  |  MSE  |  MCX  |  SEBI  |  SCORES  |  Anti Money Laundering Measures  |  Important Policies  |  Dos & Donts  |  National Pension System  |  List of GST Registration Number

© 2005 Kotak Securities Limited.

Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. Telephone No.: +22 43360000, Fax No.: +22 67132430.
Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825.

CIN: U99999MH1994PLC134051. SEBI Registration No: INZ000200137(Member of NSE, BSE, MSE, MCX & NCDEX), AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586.

NSDL/CDSL: IN-DP-NSDL-23-97

New To share Market?

Open Your Account Today!

New Customer?

Hurry! Sign up for Free Intraday Trading now

BROKERAGE FREE

on intraday trades

AVAIL THE OFFER NOW

NO ACCOUNT OPENING CHARGES



Submit

Please Note

That by submitting the above mentioned details, you are authorising Kotak Securities & its sub-brokers & agents to call you and send promotional communication even though you may be registered under DNC.

Open An Account