Table Of ContentDedicated to
My Parents
Pa ge | 1
Abstract
The current dissertation is undertaken to analyze technical analysis, its indicators and
their profitability and feasibility. This dissertation gives the basics idea of technical
analysis and how it works and helps the investors in generating profits. It also shows
how to use charts for technical analysis. In the analysis part it focuses on one of the
most popular indicator called Moving Average Convergence Divergence (MACD)
and applies it in different stock exchanges to examine whether it works in all or not.
The objective of this dissertation is to provide investors with a clearer view of where
to use Moving Average Convergence Divergence (MACD).
This dissertation analyses performance of Moving Average Convergence Divergence
in five different stock markets. These stock markets include Bombay Stock Exchange,
Athens Stock Exchange, New York Stock Exchange, Dubai Financial Market, Abu
Dhabi Stock Exchange and Australian Stock Exchange.
The conclusion of this dissertation was that Moving Average Convergence
Divergence was able to work at its best where the economy was not going through
any kind of crisis. In other words efficient markets where as it was not able to
generate much profit in economy like Greece which is suffering from European Debt
Crisis. In Middle Eastern markets it was not able to perform well at all.
At the end of this paper investors can easily make out where they can use MACD and
where they need to use fundamental analysis or other technical indicators.
1
Analysis of Moving Average Convergence Divergence (MACD) in different economies
2
Declaration
I hereby declare that this submission is my own work and that, to the best of my
knowledge and belief, it contains no material previously published or written by
another person, nor material which to a substantial extend has been accepted for the
award of any other degree or diploma of a university or other institute of higher
learning, except where due acknowledgement is made in the text of the report.
Zayd Pandit
2
Analysis of Moving Average Convergence Divergence (MACD) in different economies
Pa ge | 3
Acknowledgements
It is a great pleasure to thank everyone who assisted me in writing my dissertation
successfully. I offer my sincerest gratitude to my supervisor, Dr. Elango
Rangaswamy, who guided me through several parts of my dissertation. I am also
grateful to my classmates and colleagues at work who provided me with great
information resources and helped me during my dissertation.
I offer my regards and blessings to my family and all of those who supported me in
any respect during the completion of my dissertation without them this dissertation
would not have been completed.
Sincerely,
Zayd Pandit
3
Analysis of Moving Average Convergence Divergence (MACD) in different economies
4
Table of Content
Abstract………………………………………………...1
Declaration…………………………………………….2
Acknowledgement………………………………….…3
Table of Content……………………………….………..4
List of Figures…………………………………………..5
List of Tables…………………………………………....6
Chapter 1……………………………………………….7
(a) Introduction... 1.1
(b) Two Categories …1.2
(c) Research Importance and Outline…1.3
(d) Research Objectives…1.4
(e) Criticisms……….1.5
(f) Limitation of the study…1.6
(g) Conclusion …1.7
Chapter 2………………………………………………13
(a) Introduction…2.1
(b) History…2.2
(c) Literature Review…2.3
(d) Conclusion…2.4
Chapter 3……………………………………………..30
(a) Introduction…3.1
(b) Moving Average Convergence Divergence (MACD)…3.2
(c) The MACD Model…3.3
(d) Objective…3.4
(e) Conclusive Test…3.5
(f) Conclusion…3.6
Chapter 4……………………………………….........49
(a) Conclusion…4.1
(b) Recommendations & Suggestions…4.2
References
4
Analysis of Moving Average Convergence Divergence (MACD) in different economies
Pa ge | 5
List of Figures
Serial No. Fig. No. Page
1 3.1 30
2 3.2 31
3 3.3 32
4 3.4 34
5 3.5 36
6 3.6 37
7 3.7 38
8 3.8 40
9 3.9 41
10 3.10 43
11 3.11 44
12 3.12 46
13 3.13 47
5
Analysis of Moving Average Convergence Divergence (MACD) in different economies
6
List of Tables
Serial No. Table. No. Page
1 3.1.1 37
2 3.1.2 40
3 3.1.3 43
4 3.1.4 45
5 3.1.5 46
6 3.1.6 48
6
Analysis of Moving Average Convergence Divergence (MACD) in different economies
Pa ge | 7
Chapter One
This chapter includes introduction to research papers and providing a brief
background about technical analysis and its indicators. In addition to this the
dissertation also provides the rationale behind this research and whom it’s going to
benefit. In the end this chapter will clearly describe the objective and a short
conclusion.
(1.1) Introduction
These days investors and traders are using different technical indicators in the
financial markets to make money. Some combine two or more technical indicators
and some combine technical analysis and fundamental analysis. All this is done with a
sole purpose of making money and minimizing risk. Earlier investors used to rely on
fundamentals of the company and there decision was based on these fundamental.
Since the introduction of technical analysis many trader or investors have shifted from
fundamentals to technical analysis. Technical analysis has helped a lot of traders and
investors in making money. Technical Analysis can be defined as the practice of
studying the stock market`s past in an attempt to predict its future is known as
Technical Analysis. It helps in forecasting future financial prices movements.
7
Analysis of Moving Average Convergence Divergence (MACD) in different economies
8
Technical analysis is like weather forecasting, which does not result in absolute
prediction about the future trend. Anticipation of what will happen to prices in future
is where technical analysis comes handy.
Pring (2002) has given a definition for technical analysis:
“The technical approach to investment is essentially a reflection of the idea that prices
move in trends that are determined by the changing attitudes of investors towards a
variety of economic, monetary, political and psychological forces. The art of technical
analysis, for it is an art, is to identify a trend reversal at a relatively early stage and
ride on that trend until the weight of the evidence shows or proves that the trend has
reversed.”
(1.2) Two Categories
Technical Analysis vs. Fundamental Analysis
As discussed earlier there are two main categories or school of thoughts in the
financial markets. We already know that technical analysis focuses on movements of
prices of securities and predict future prices using this data. On the contrary economic
factors are used by fundamental analysts. These factors are called Fundamentals. Next
section highlights the differences between technical analysis and fundamental
analysis.
Technical Analysis - Charts vs. Fundamental Analysis- Financial Statements
Both of these schools of thoughts approach securities from two different perspectives.
First, the technical analysis uses charts and patterns to predict the future on the other
8
Analysis of Moving Average Convergence Divergence (MACD) in different economies
Pa ge | 9
hand fundamental analysis depend on financial statements for predicting the direction
of future price movements.
Fundamental analysis relies on financial statements like balance sheet, income
statement and cash flow statement to determine the value of a company. It’s very
helpful for making investment decisions as in if the stock price is below the intrinsic
value it means it’s a good investment. But on the whole fundamental analysis goes
beyond only financial statements. On the other hand technical analysts believe stock
price contains all the information including the fundamentals of a company. And all
this information can be found in charts. Fundamental analysis approach has a long-
term analysis as compared to technical analysis. In case of technical analysis the
period of analysis can be from days to weeks and months in short the period is
relatively small. Fundamental analysis period is mostly over number of years.
Both of these schools of thoughts differ in terms of time periods because of their
different styles of investment for which they are made. In case of fundamental
analysis a company`s value takes times to get reflected in the market. If there is a rise
in the prices, the gain cannot be realized until the correct stock price is reflected in the
market. This type of investment is popularly known as value investment and it works
on the assumption that short-term market is incorrect. It believes that price of a stock
with the passage of time corrects itself. The passage of time in this case can represent
several numbers of years. Fundamentalists’ work on numbers and its analysis are
released after a long period of time. As we all know earning per share changes mostly
after financial statements are submitted which most of the times quarterly not on daily
basis like price and volume. It can also be said that fundamentals are general
9
Analysis of Moving Average Convergence Divergence (MACD) in different economies
