Bajaj Finance Ltd. Investment Management
Essay by floydnaman • August 7, 2018 • Case Study • 1,604 Words (7 Pages) • 929 Views
Investment Management
Section B
Technical Analysis Assignment
on Bajaj Finance
as on July 1, 2018
Submitted by
Group 9
Megha Aggarwal (PGP33280)
Naman Jain (PGP33284)
Sharang Gaikwad (PGP33294)
Sourav Agarwal (PGP33297)
Contents
Price and Volumes pattern 2
RSI 3
Stochastics 4
MACD 5
Bollinger Bands: 7
Conclusion 8
Price and Volumes pattern
Following graph shows the candlestick plot for price and bar chart for volumes of Bajaj Finance Ltd. over the past 2 months. From May 15 onward, the share price has shown an upward trend backed up with a surge in volumes. A similar trend is observed around June 6 where rising prices is supported by strong volumes. This shows in a price rally from under 2100 to a high of over 2400 on June 26.
However, during the subsequent decline phase, until June 30, volumes are relatively low and a reversal pattern may be expected. This also suggests that the effect of upward trend is strong and the downward trend may be due to low volumes, not because of a fundamental problem with the stock. The recommendation based on price-volume date until July 1 is a BUY.
EDIT: The prices seem to confirm this trend. The share price has risen steadily in the first week of July. However, with increasing prices, volumes seem to contract and the stock might be facing a resistance at this level. Thus, we can expect prices to go down in the near future. However, shares can be bought once the reversal starts with share price going up with strong volumes.
[pic 1]
[pic 2]
RSI
Relative Strength Indicator (RSI) is a momentum oscillator that measures the speed and change of price movements. It oscillates between 0 and 100 and considered overbought when above 70 and oversold when below 30. Generally, RSI is calculated on a 14-day period. We back-tested RSI indicator calculated on different number of days and with different strategies on Bajaj Finance Ltd. stock for the period 01/01/2015 to 29/06/2018.
Parameters that gave better results were
S NO | Period | Strategy | HPR | Success rate |
1 | 7 | B:30-50 S:70-50 | 9.16 % | 66.67% (22/33) |
2 | 10 | B:30-50 S:70-50 | 13.39% | 66.67% (14/21) |
3 | 14 | B:30-50 S:70-50 | 20% | 88.88% (8/9) |
4 | 20 | B:30-50 S:70-50 | 10.3% | 100% (3/3) |
We tested different strategies and selected the strategy to buy when RSI crosses above value 30 and hold it till it crosses above 50 and short sell when RSI crosses below value 70 and hold it till it crosses below 50. We considered a capital of ₹1 million and both long and short positions were considered on a daily basis. Transaction charges were obtained from Zerodha. From the data, we can see that 14-day period is working well with our stock.
14-day RSI value was 59.4649 on June 29. A few days back it peaked at 70 and declined to this value. As per our strategy, we should have taken short position few days back and hold it until the RSI level falls below 50. Over the past 3 years, RSI has swung between 30 and 70 often indicating changing bullish and bearish trends. For example, in late 2016, RSI rose from below 30 twice indicating a strong buy. Accordingly, share price rose drastically in the first half of 2017.
There is no strong signal and hence recommendation from RSI would be to wait and watch for a few days.
[pic 3]
Stochastics
The stochastic oscillator is a momentum indicator comparing the closing price of a security to the range of its prices over a certain period. Considering the most traditional settings for the oscillator, 20 is typically considered the oversold threshold and 80 is considered the overbought threshold. Generally, it is calculated on 14-day or 14-week period. We back tested stochastics calculated on different number of days and with different strategies on Bajaj Finance Stock for the period 01/07/2015 to 29/06/2018.
Parameters that gave better results were
S NO | Period | Strategy | HPR | Success rate |
1 | 14 - 3 | B:20-30 S:80-70 | 26.4% | 64.7% (22/34) |
2 | 20 – 5 | B:20-30 S:80-70 | 26.5% | 77.7% (14/18) |
3 | 28 – 3 | B:20-30 S:80-70 | 28.9% | 71.4% (15/21) |
4 | 28 – 3 | B:20-50 S:80-50 | 18.1% | 70.5% (12/17) |
We tested different strategies and selected the strategy to buy when %d crosses above value 20 and hold it till it crosses above 30 and short sell when %d crosses below value 80 and hold it till it crosses below 70. We considered a capital of ₹1 million and both long and short positions were considered on a daily basis. Transaction charges were obtained from Zerodha. From the data, we can see that 20-day period for %k and 5-day period for %d is working well with our stock.
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