On 9th December, 2019, Jaipuria Institute of Management, Lucknow conducted a guest session as a part of the course of Equity Research on the topic "Playing Stock Market with Technical Analysis”. The session was organized under the guidance of course faculty Prof. Rashmi Chaudhary.
The eminent guest for the session was Mr. Arvind Chaudhary, Regional Head UP, Aditya Birla Finance, Lucknow. He is an alumnus of Jaipuria Institute of Management, Lucknow batch 1997-1999 with more than 15 years of experience. He holds the Charted Market Technician designation.
Prof. Rashmi Chaudhary introduced the speaker to the audience. She highlighted the speaker's past achievements, work experience, his current job profile and his roles& responsibilities.
The speaker initiated the session by discussing the four basic questions:
· How to Invest?
· Where to Invest?
· When to Invest?
· Why to Invest?
Mr. Arvind Chaudhary started the discussion by differentiating the fundamental and technical analysis. He mentioned that with EIC Analysis and use of models such as Dividend Discount model or PE multiples etc. We try to establish a fundamental anchor to the value of the stock, and refer it as intrinsic value. Through fundamental analysis we try and check whether the potential of the price of the stock to go high is there or not. Quite in contrast to the above approach, we have another school of thought that essentially believes that stock prices are predominantly driven by sentiments of the market.
He emphasized that surely besides fundamentals there is something more that drives the stock prices. Through technical analysis we try and see how the change in prices is represented by pictorial representation.
The Dow Theory on stock price movement is a form of technical analysis that includes some sort of sector rotation. He discussed the five basic principles under Dow Theory which are as follows:
1. The Averages discount everything
2. The market has three Trends called the Primary, Secondary and Tertiary
3. The Averages must confirm each other
4. Volume must confirm the Trend
5. A Trend is assumed to be in effect until it gives definite signals that it has reversed
The speaker explained the most popular oscillator Relative Strength Index (RSI) and the Bollinger Bands.
All these tools and indicators were explained with the help of Nifty Index Future prices data taking into account different time periods.
RSI- the Relative Strength Index is a momentum indicator that measures the magnitude of recent price changes to evaluate over-brought or oversold conditions in the price of a stock or other asset. Tops and bottoms are indicated when RSI goes above 70 or drops below 30. Traditionally, RSI readings greater than the 70 level are considered to be in overbought territory, and RSI readings lower than the 30 level are considered to be in oversold territory. In between the 30 and 70 level is considered neutral, with the 50 level a sign of no trend.
Bollinger Band- A Bollinger band is a technical analysis tool defined by a set of lines plotted two standard deviations away from a simple moving average (SMA) of the security’s price. It shows the levels of different highs and lows that a security price has reached in a particular duration and also its relative strength, where highs are near to the upper line and lows are near to lower line. In other words, the price points near the edges of the ‘envelope’ formed can help the investor recognize a pattern at a particular moment. The bandwidth widens and narrows depending on volatility. If it’s high, the band would widen and if the volatility decreases, then the band would narrow. These bands show oversold and overbought conditions in relation to a selected time period moving average.
And at last he talked about the Point and Figure chart and told how it is different than the other charts and also gave us insights about the other tools of technical analysis.
Eventually, Mr. Arvind Chaudhary ended his session with some remarkable and valuable investment tips for students. The discussion was thereafter followed by the questions and answers round.