By UV Vamsikrishna, Employee, Kotak Securities
Commuting to office in Mumbai is fun. You cut lanes, look for short routes and try avoiding traffic. You’re the happiest man if you get to cross only the Green signals all your way to the office. Hear a news on radio that there’s a Ganapati procession in the evening, you prepare to leave early. You change routes when you hear about an accident or a deadly bomb blast.
On a normal day, we manage to catch the train scheduled exactly at 07:17am and then get into a bus that starts at 08:26am and then meet the same cab-wala at the stand. One of my dear friend, who probably doesn’t need a watch, says, “I see a girl every day, walking up the staircase from the other side of Elphinston-Road railway station. But, if I see her climbing down the stairs on this side of the road, I know I’m 5 ½ minutes late and have to wait another 10 minutes for a share-cab”. Even weather department cannot predict so accurately… Few people even predict the traffic density for a particular day and choose an appropriate medium to commute – 2-wheeler, a car or the public transport. Daily commuters notice that the traffic is very less on a Monday and extremely high on a Friday evening. So is their preference – Car on Monday and a 2-wheeler for Friday.
The discussion on this big issue of ‘Traffic’ has happened over a cup of cappuccino when my dear friend (who notices the girl every day) and I were comparing our portfolios and the money we put in the
Stock Markets. What’s traffic to do Stock Market? It’s not traffic but the ‘skill’ that we use to commute every day in a city like Mumbai. Skill…what skill? It’s definitely a skill to predict which lane will be less with traffic, how late you’ll get if you start at 7:00am against 7:20am on a Wednesday and what will happen if you take car on a Friday. The skill is identifying the ‘Patterns’ in the traffic on days, places, vehicles etc… Most of the decisions we took to commute was a result of the ‘pattern’ we identified in the traffic, over a period of time.
Identifying the patterns helps a daily commuter manage his/her journey. Similarly, a regular trader also benefits a lot in Stock Market when such patterns are identified in the stocks that he tracks. There’s a science called ‘Technical Analysis’ whose sole benefit is to identify patterns and predict the stock movement. This science was discovered and popularised by Japanese over 400 years ago.
The process of finding patterns involves converting the obvious things like stock price seen over a period of time into the formats prescribed in Technical analysis. Few of the patterns that are defined in a text book of Technical Analysis are “Head and Shoulders”, “Continuation Wedge”, “Diamond Bottom” etc… These words might look Greek and Latin for a person whose is a novice to stock markets. If you are one of them, just imagine these patterns as the circles & rectangle i.e; Geometry of Stock Markets. Every pattern is a visual graphic of the stock trend, when formed gives an indication whether the stock will move up or down and by what price. Bullish patterns predict that the stocks will move up and Bearish patterns indicate the stocks going down.
Example of a bullish pattern:
Technical Analysis is not a difficult field, but it’s a cumbersome process for a normal trader, especially when you want to identify a pattern among 100 stocks and predict their target prices. Many technical analysts outsource this job to agencies who employee many people to track hundreds of stocks to identify opportunities.
For active traders who are in search of stock ideas, Kotak Securities has a unique offering called TradeSmart which is an automated tool that gives all the stocks that form a pattern at a click of a button. It runs its algorithm on all stocks listed on BSE and NSE at the end of the day every day and searches for all the stocks that form a strong pattern. These stocks / patterns are featured and listed on the website. This tool can be used by the customers to identify both bullish and bearish opportunities in the market for trading. This being an automated tool, it is very fast, scalable and error-free which otherwise for a normal technical analyst it’s impossible to do. TradeSmart also helps you set alerts to receive stock ideas in your mailbox.
For example you may wish to receive all bullish stocks priced between Rs 10 and Rs 50 in your mail box every day. An alert set like this will deliver the ideas in your e-mail before the market opens. It also has a section for Education, when you can learn Technical Analysis.For more details you can visit this link:
http://www.kotaksecurities.com/stock-market-research/trade-smart.html
Technical analysis is not a kind of astrology or a work of intuition. It’s based on a science of pattern recognition. If we go back again to the analogy with our traffic of Mumbai, there could be thousands of reasons why the traffic behaves differently and why such patterns occur. Most of the businessmen close their shops on Monday resulting in less traffic and allowing us to drive our cars. People go to pubs or resorts for a weekend holiday on Fridays, resulting in heavy traffic and causing us to choose a two wheeler. My friend noticing the same girl on either side of the stairs is also a pattern.
Technical Analysis helps us unveil the hidden reasons behind the movement of the stock price. It also helps predict the future price based on the patterns formed. Tradesmart automated the pattern recognition process and is helping the traders identify all the opportunities in the market at a click of a button.
