Efficacy of Price Action Trading Strategies in the Context of the Indian Equities Market

Introduction :

• Welcome to our project on price action trading strategies for Indian equities market! This project was born out of our participation in the Inter IIT Tech Meet 11.0 where we took up QuantInsti's intriguing problem statement. We are proud to announce that we were at Bronze Runner-up position for our hard work and dedication to the task. This project examines the effectiveness of candlestick patterns and price action trading strategies in the context of the Indian equities market. Through developing and testing three distinct hypotheses, we provide a nuanced and insightful examination of these techniques and contribute to the ongoing discourse on financial predictions.

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Summary :

The project involves three hypotheses:

• Hypothesis 1: The combination of Mean Reversion and Engulfing or Harami patterns may provide useful signals for entering and exiting trades.

• Hypothesis 2: Doji patterns can be a valuable tool for traders in identifying potential market trends and making informed trade decisions, especially in banking and auto Indian stocks.

• Hypothesis 3: Identifying key resistance levels and buying the security when it breaks through them can be a valuable tool for capturing the potential upside in security that shows strength.

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Data :

• We collected data for a variety of large-cap and liquid Indian equities, including banks, autos, metals, and IT stocks. Our data includes daily price, volume, and technical indicators such as moving averages, Bollinger Bands, and relative strength index (RSI).

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Results :

From our analysis, we found that:

• Mean Reversion and Candlestick Patterns can be useful technical analysis tools for trading large-cap and liquid Indian equities.
• The combination of Mean Reversion and Engulfing or Harami patterns may provide useful signals for entering and exiting trades.
• The 2nd Hypothesis works excellent for the sectors sensitive to the nation’s interest rates.
• Doji patterns can be a valuable tool for traders in identifying potential market trends and making informed trade decisions, especially in banking and auto Indian stocks.
• Hypothesis 3 can be a valuable tool for capturing the potential upside in security that shows strength.

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Conclusion :

Overall, our project suggests that technical analysis can be a useful tool for trading Indian equities. However, it is important to note that technical analysis should be used in conjunction with fundamental analysis and a comprehensive risk management strategy. We hope our findings will provide useful insights for traders and investors interested in the Indian equity market.

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For a more detailed analysis, click on the following link to access the full report : QuantInsti_InterIIT2023.pdf