Submitted By: Vipin Prabhakar Singh PGDM IVth Sem

Technical Analysis (Contents)

1) Introduction
2) Technical Vs Fundamental Analysis 3) Advantages of Technical Analysis

4) Challenges to Technical Analysis

5) Dow Theory 6) Types of Charts

Introduction
Two major types of analysis for predicting the performance of a companys stock
fundamental technical

Technical
looks for peaks, bottoms, trends, patterns, and other

factors affecting a stocks price movement makes a buy/sell decision based on those factors

What is Technical Analysis?

Method of evaluating securities by analyzing statistics generated by
Market activity Past Prices

Volume

Do not attempt to measure intrinsic value Instead look for patterns and indicators on charts to determine future performance

Technical Analysis vs. Fundamental Analysis

Technical analysis involves the development of

trading rules based on past price and volume data for individual stocks and the overall stock market.

Fundamental analysis involves economic, industry,

and company analysis that lead to valuation estimates for companies, which can then be compared to market prices to aid in investment decisions.

Challenges to Technical Analysis

Challenges to basic assumptions
Empirical tests of Efficient Market Hypothesis (EMH)

show that prices do not move in trends

Challenges to technical trading rules

Rules that worked in the past may not be repeated Patterns may become self-fulfilling prophecies A successful rule will gain followers and become less

successful Rules all require subjective judgment

Dow Theory
Average discounts everything
Market has three movements Price action determines trend Lines indicate movement Price/Volume relationship provides background Averages must confirm

Three movement of Dow Theory

Daily Fluctuation

( minor Trends )
Secondary Movement Primary Treads

Technical analysis: Chart Types

Bar Chart Line Chart Candle Stick Charting Point and Figure Chart

The Bar Chart

Line Chart

Candlestick Charts

Point and Figure Charts

Trends
Types of Trend There are three types of trend:
Uptrends

Downtrends
Sideways/Horizontal Trends

Conclusion
Technical analysis is a particular approach to

investing that will appeal to some investors and not to others. Whereas most investors concentrate on the fundamentals of a company (turnover, profits, growth etc), technical analysts are concerned with the share price itself. They believe that prices are driven by the psychology of investors rather than fundamentals. By understanding investor psychology, they can predict which way prices will move.