10th International Conference on Emerging Trends in Corporate Finance and Financial Markets

October 13-14, 2022

Price Action Analysis: A Case Study on “Tata Motors Ltd”

Bondili Lakshmi Shalini Singh
IInd Year BBA Student,
Kristu Jayanti College Autonomous

Leelavathi R
Assistant Professor, Department of Management,
Kristu Jayanti College Autonomous

Bijin Philip
Assistant Professor, Department of Management,
Kristu Jayanti College Autonomous
bijin.p@kristujayanti.com

Abstract
The objective of this study is to methodically create a trading strategy based on stock market
price action that is sustainable and lucrative. The objective of this study is to evaluate the
efficacy of the convergence of price action disciplines. The clearest perspective of technical
analysis available on the market is provided by price action confluent levels, which enable
traders to base their trading decisions on both recent and historical price movements rather
than just technical indicators. In this paper, a trading strategy based on price action confluence
is constructed regarding Tata Motors Ltd, so that the traders have an overview of the analysis
based on the price action strategies that include the preface of the double top pattern.
Henceforth, traders will be able to have their own descriptive and speculative analysis wherein
the price action trading pitches in.
Key Words: Fundamental and Technical Analysis, Price Action Trading, Effective Market
Hypothesis, Bullish and Bearish Trend, Consolidation, Double Top Pattern
Introduction
India’s stock market history dates back to 1875. In this era, stock trading is a new age that thrives in the
mindsets of every individual. When it comes to trading, there are two main approaches namely the
fundamental approach and the technical approach. With the fundamental approach, the belief is that the
underlying value of a stock can be determined using relevant data. Here, traders look at things like the
state of the overall economy and specific market segments by studying a company’s earnings, forecasting
assets, and liabilities along with the management of the companies to invest in.
When it comes to the technical approach, the belief is that the fundamentals are already in the price of a
market. They instead use price action charts to determine what a market will do next and go with the
market trends. They identify opportunities in price trends and actions using chart patterns, price
behavior, and trends in the past behavior of a stock. Here comes the price action trading into the picture.
One of the main ways price action traders attempt to predict future price movement is through the use of
support and resistance, which relies on a notion that areas, where people bought or sold in the past, are
likely to be areas of interest gain in the future. The charts always show the areas where significant buying

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October 13-14, 2022
and selling occurred in the past. Because markets are driven primarily by people and emotion, this
information can be used by price action traders.
One such stock that is relevant for the analysis of price action is “TATA MOTORS LTD”. Tata Motors
Limited (TML) is an Indian multinational automotive manufacturing company founded in 1945. It is
headquartered in Mumbai, India, and is a part of Tata Group. It was once a fledgling elusive car maker in
India and is now quickly rising to compete within the ranks of the world’s top automobile manufacturers
in its infancy Tata Motors arose to fill a market gap for domestically built commercial vehicles while global
automotive manufacturing was mainstream by the mid-20th century. India was still struggling to produce
its own vehicles domestically a few automakers with Hindustan Motors leading the way became
established and helped to turn the industry around. In the mid-1950s, Tata Motors created its first
commercial vehicle and became a major contributor to the Indian automobile industry by selling its
vehicles in 175 countries. Now TML is one of the largest automobile manufacturers, acquiring Jaguar Land
Rover for $2.3 billion. Thus, it is preparing to claim 50% of the Indian passenger vehicle market by
completely building cars domestically.

Background of the study:

The Japanese developed a form of technical analysis known as candlestick charting in the eighteenth
century, which is when technical analysis began. Most traders believe that the market follows a random
pattern and there is no clear systematic way to define a strategy that will always work. By combining the
technical analysis tools with the recent price history to identify trade opportunities based on the trader’s
own interpretation, price action trading has a lot of support in the trading community.
Self-defined strategies provide traders with flexibility, are applicable to multiple asset classes, are simple
to use with any trading software, applications, and trading portals, and allow for easy backtesting of any
identified strategy on historical data. Most importantly, the strategy gives the traders a sense of control
by allowing them to choose their own actions rather than blindly following a set of rules.
Since price action trading is an approach to price predictions and speculation, it is used by retail traders,
speculators, arbitrageurs, and even trading firms that employ traders. It can be used on a wide range of
securities including equities, bonds, forex, commodities, derivatives, etc.

Review of Literatures

Petrusheva, N., & Jordanoski, I. (2016) in this paper major focus on two components i.e., fundamental
and technical analysis aiming towards the combined usage of both the approaches that help out the
traders to give optimum results and to indicate differently investment decisions. Boobalan, C. (2014) the
researcher discussed on an important technical study of a few chosen firms explains the price action
behavior of the shares, the signals they provide, and the key market price turning points. The purpose of
this paper is to do a technical analysis of the stocks of the chosen firms and to support investment choices
in the Indian Market. Marshall, B. R., Qian, S., & Young, M. (2009) the paper states that on a subset of US
equities with a certain size, liquidity, and industry characteristics, they have examined whether popular
moving average and trading range breakout technical trading rules are lucrative. Edwards, R. D., Magee,
J., & Bassetti, W. C. (2018) this article, debunks the illusion of Fibonacci retracements and introduces a
scientific method to retracements. A logarithmic normal distribution of the retracement values is
revealed by statistical examination of the retracement data obtained from Maier-use Paape's of the
MinMax-process on a number of stock markets.
Lo, A. W., Mamaysky, H., & Wang, J. (2000) the research article, stated that in order to evaluate the
efficacy of technical analysis, they have presented a systematic and automatic approach to technical
pattern recognition using nonparametric kernel regression. Blume, L., Easley, D., & O'hara, M. (1994) the
paper stated that for the purpose of analysing the behavior of security markets, they presented an
alternate equilibrium approach. Their methodology is typical in that not all traders are aware of all

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October 13-14, 2022
fundamentals, and traders receive signals that inform them about the fundamentals of the asset, where
the aggregate supply in their model is constant. AS, Suresh. (2013) the article gives a brief note about the
fundamental analysis will be the first step in the investment selection process. The basic analysis
investigates prior to making an investment, considering the business environment, industry performance,
and selecting an investment.

Statement of Problem
Analysis and forecasting of the stock market remain interesting but there are some challenges also
regarding the same. In order to extract knowledge from the data and analyze how stock prices are
affected, we face new problems as more data become available. Among these include difficulties with live
testing, algorithmic trading, self-defeating behavior, long-term forecasting, and sentiment analysis of
corporate filings. Thus, the purpose of this study is to comprehensively review the empirical literature on
technical analysis. Technical trading rules may generate positive profits in certain speculative markets,
most notably in foreign exchange and futures markets. Various theoretical and empirical explanations
have been proposed for technical trading profits

Objectives of the study

Technical analysts and fundamental analysts have very different goals in their minds. Technical analysis
will demand you identify many short- to medium-term trades where you can earn a profit, whereas
fundamental analysis demands you to make long-term investments. The following are the core objectives
of this study:
• To analyze the future prospects using price action analysis
• To study the financial reports of the TML company
• Understanding the price action behavior of TML
• To present some challenges and opportunities for stock analysis
• To identify the major facilities and promote financial literacy

Methodology

The study aims at analyzing the price movements of Tata Motors. As the study describes the existing facts
and figures given in the financial statement and the price movements of TML, the research design
followed is descriptive and analytical. Candlestick charts provide the information namely open price. High
price, low price, and Close price, however. Candlestick charting provides a visual indication of market
psychology, market sentiment, and potential weakness making it a rather valuable trading tool. The
quarterly financial data were taken and the future price movement was analyzed using various tools. Data
were collected from trading of the equity market in NSE, various books, journals, magazines, and
websites. TML is actively traded in NSE and was taken on a Stratified sampling basis for the study.

Strategies of Price Action Trading

Henceforth, to strategize on how price action analysis works in the real market scenario, here is a glimpse
of the stock actions taking place in the market.

Efficient Market Hypothesis

According to the market efficiency theory, any new information in the market is quickly reflected in the
prices of the stocks and securities being traded. In other words, it asserts that the market is so efficient
that it instantly incorporates all known information into asset prices.
And, because this is the same data that analysts use to forecast stock market trends, they add nothing
new to the table. Why you might ask? That's because the market has already surpassed them! So,

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October 13-14, 2022
according to the EMH, no amount of analysis or research can provide an investor with a competitive
advantage over another investor.
To predict the future behavior of securities and to time the entry and exit points of transactions, technical
analysts examine price activity on charts for patterns or indicators. To provide traders with information,
technical instruments like oscillators and moving averages are derived from price activity.

Market trends and Analysis

1) Uptrend or Bullish Trend: An upward trend in stock prices within a particular sector or an overall
increase in broad market indices are referred to as a "bullish trend," which is characterized by
a high level of investor optimism.
2) Sideways or Consolidation: Consolidation is the period in which a stock or index trades within a
range. The trend is said to be sideways, and it can change depending on the situation. Once
this range is broken, larger moves may occur, but the movement cannot be predicted until
the range is restored.
3) Downtrend or Bearish Trend: A 'Bearish Trend’ in financial markets is identified as a downward
trend in the prices of an industry's stocks or an overall fall in broad market indices. The
bearish trend is characterized by high investor pessimism about the scenario of falling market
prices.

Application of Price Action Analysis on Tata Motors

Tata Motors with the Trends

The company is one of India’s largest Original Equipment Manufacturers (OEMs) offering a range of e-
mobility solutions.
As of FY 22, Tata Motors is India’s third-largest carmaker and boasts a ~11.4% market share in India’s
domestic passenger vehicles segment. Also, In the commercial vehicle segment, it is the leader with
almost 44.23% market share in India. The Tata group’s ecosystem will help them capture a significant
market share in the EV industry.
Tata Motors share price trend
Last 1 Month: Tata Motors share price moved down by 14.64% Last 3 Months: Tata Motors share price
moved down by 4.23% Last 12 Months: Tata Motors share price moved up 19.69%
Tata Motors has been known to make sturdy and robust cars, right from the beginning.
Here is a thorough analysis of the market trends of Tata Motors Limited

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October 13-14, 2022

Entry and Exit Trades

If you enter a trade because a downtrend has started, stay in the trade until the trend reverses. Price
action dictates when to get out by providing evidence that the price is turning. If entering a supply area,
consider exiting at demand. If entering near a demand area, consider exiting near supply. The price action
trader can open a long or short position when the price breaks out from any price pattern, candlestick,
support, or resistance level. However, wait a moment before taking the position after the breakout. Tata
Motors Ltd.'s stock price is predicted to rise somewhat in the near future based on the price trend
research, which shows that it is semi-strong.

Picture-1:

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October 13-14, 2022

Picture-2:

Preface of Double Top Pattern

The double top pattern entails two high points within a market which signifies an impending
bearish reversal signal. A measured decline in price will occur between the two high points, showing
some resistance to the price highs. After retracing a portion of the first peak, the market rallies back
towards the high of the first peak however, strength in the market is waning and is unable to sustain a
break above the first peak.
The double top and double bottom patterns are powerful technical tools used by traders in major
financial markets.

Mounting of Double-Top Pattern in Tata Motors

Recent
Financi
al Data
of TML
Q1-
2022

First-
quarter
financial
results
for the

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October 13-14, 2022
period ending June 30, 2022, were released by Tata Motors Limited. Sales for the first quarter were INR
712,277.6 million, up from INR 655,353.8 million in the prior quarter. In contrast to INR 669,880.5 million
a year before, revenue was INR 728,220.2 million. Compared to INR 44,509.2 million a year ago, the net
loss was INR 50,066 million. Recommendation: Medium to long-term investment

Limitations of Price Action

Price action interpretation is highly subjective. When two traders analyze the same price movement, it is
common for them to reach different conclusions. One trader may detect a bearish decline while another
believes the price action indicates a possible near-term turnaround. Of course, the time period selected
has a significant impact on what traders observe, as a stock can have multiple intraday downtrends while
maintaining a month-over-month uptrend, where the trade predictions are speculative. Speculative deals,
even those with a high degree of probability, need traders to assume risks in order to access possible
returns. The macroeconomic or non-financial factors affecting security are not expressly taken into
account by price action.

Results and Discussions

Price action is one of the most often used trading principles. A trader who understands how to use price
action correctly can frequently considerably improve his performance and method of looking at charts.
However, many errors and half-truths continue to circulate, confusing traders and setting them up for
failure.
When it comes to Tata Motors Ltd, is one of the few stocks that has routinely surpassed historical highs in
recent days. Despite middling fundamentals and earnings, it outperforms the market and only a few
other car firms.

Conclusion
To summarise, I believe that technical analysis can be used to begin a trade, but exiting the deal is what
determines whether you earn or lose money, and technical analysis is not particularly good at signaling
exit trades. As a result, whether or not extra returns are made is determined by the analyst's ability to use
these techniques. However, consistently earning excess profits with technical analysis is EXTREMELY
tough.
Technical analysis is most effective in currency markets, intermediate in futures markets and ineffective
in stock markets. Stock market chart patterns outperform currency market chart patterns. Overall,
nonlinear techniques perform better. Technical analysis is no longer as effective as it once was.
Everything in all Tata Motors is on the road to establishing ever stronger relationships with the individuals
who have staked their money on the company's products, with a product portfolio encompassing
commercial, utility, and passenger vehicles.

References
• Petrusheva, N., & Jordanoski, I. (2016). Comparative analysis between the fundamental and
technical analysis of stocks. Journal of Process Management and New Technologies, 4(2), 26-31.
• Boobalan, C. (2014). Technical analysis in select stocks of Indian companies. International Journal
of Business and Administration Research Review, 2(4), 26-36.
• Marshall, B. R., Qian, S., & Young, M. (2009). Is technical analysis profitable on US stocks with
certain size, liquidity or industry characteristics?. Applied Financial Economics, 19(15), 1213-
1221.
• Edwards, R. D., Magee, J., & Bassetti, W. C. (2018). Technical analysis of stock trends. CRC press.
• Lo, A. W., Mamaysky, H., & Wang, J. (2000). Foundations of technical analysis: Computational
algorithms, statistical inference, and empirical implementation. The journal of finance, 55(4),
1705-1765.

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October 13-14, 2022

• Blume, L., Easley, D., & O'hara, M. (1994). Market statistics and technical analysis: The role of
volume. The journal of finance, 49(1), 153-181.
• AS, S. (2013). A study on fundamental and technical analysis. International Journal of Marketing,
Financial Services & Management Research, 2(5), 44-59.

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