|
Abstract:
|
In spite of the far longed practices of technical analysis by many
participants in Indian stock market, none have arrived at the exact position of
technical analysis as a tool for foretelling share prices. There is no evidence
supporting that one has established its definite role in predicting the behaviour of
share price and also to see the extent of validity (how far reliable) of technical tools
in Indian stock market. The problem is the vacuum in the arena of securities market
analysis where an unrecognised tool is practised, i.e., whether to hold on to technical
analysis or to drop it. Again, as already stated in this chapter, its validity need not
continue forever. It may become futile as happened in developed markets.
Continuous practice of a tool, which is valid only during discontinuous times is also
an error. The efficacy of different market phenomena in terms of their ability to
foretell the extent and direction of the price movements and reliability thereof
remain as not yet proved in. This requires further study in this area so that this
controversy may be settled. A solution to the problem requires enquiring and
establishing the applicability of technical analysis, if any, there is in the Indian stock
market. The study has the following two broad objectives for the purpose of
confirming the applicability, if any, of technical analysis in the Indian stock market.
The first objective is to ascertain the current validity of ‘traditional holding with
respect to patterns’ and the second objective is to ascertain the ‘consistent
superiority’, if any, of technical indicators over non-signal strategies in return
generation. The study analyses the five patterns, which are widely known and
commonly found in publications. They are: (1) Symmetrical Triangles, (2) Rising
Wedges, (3) Falling Wedges, (4) Head and Shoulders Top and (5) Head and
Shoulders Bottom. |