Risk fundamental & technical analysi- dow theory- chartss


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Beginners guide to Security Analysis and Portfolio Management

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Risk fundamental & technical analysi- dow theory- chartss

  1. 1. SYNOPSISRisk – Meaning – ClassificationMeasurement of riskFundamental and Technical AnalysisDow’s TheoryCharts
  2. 2. Definition of Risk Risk is the chance that an investment’sactual return will be different than expected It is expressed in terms of volatility of return Risk includes the possibility of losing someor all of the original investmentGenerally the greater the risk associatedwith an investment the greater the rate ofreturn investors will expect
  3. 3. Systematic Risk
  4. 4. Unsystematic Risk
  5. 5. Measurement of Risk• Risk is measured by the variability of return• The statistical tool often used to measure the unsystematic risk isstandard deviation• Beta is used to measure the systematic risk• Beta describes the relationship between the stock’s return andindex returnβ =Correlation CoefficientBetween Market and Stock×Standard Deviation of Stock ReturnsStandard Deviation of Market Returnsβ = 1 – indicates that the securitys price will move with the marketβ < 1 – indicates that the security will be less volatile than the market.β > 1 - indicates that the securitys price will be more volatile than the market
  6. 6. Fundamental analysis• Fundamental analysis is a method of evaluating securities by attemptingto measure the intrinsic value of a stock.• Fundamental analysis of a business involves analyzing its financialstatements and health, its management and competitive advantages, andits competitors and markets.• Fundamental analysis maintains that markets may misprice a security inthe short run but that the "correct" price will eventually be reached.• Profits can be made by purchasing the mispriced security and then waitingfor the market to recognize its "mistake" and re-price the security.
  7. 7. FundamentalAnalysisEconomic AnalysisIndustryAnalysis
  8. 8. Technical analysis• Technical analysis is the evaluation of securities by means ofstudying statistics generated by market activity, such as pastprices and volume.• technical analysis really just studies supply and demand in amarket in an attempt to determine what direction, or trend, willcontinue in the future.• Start of Bull Phase = higher Low + break above previous High.• End of Bull Phase = lower High + break below previous Low.
  9. 9. Movement of NIFTY ( JUL 11 – MAR 12)RangeBound
  10. 10. Difference between Fundamental & Technical Analysis
  11. 11. Dow’s theoryDow theory remains as the foundation of technical analysis. It wasformulated from a series of Wall Street Journal editorials authoredby Charles H. Dow.Six basic tenets of Dow theory The market has three movements Market trends have three phases The stock market discounts all news Stock market indices must confirm each other Trends are confirmed by volume Trends exist until definitive signals prove that they have ended
  12. 12. Support and Resistance Level
  13. 13. Charts• Charts are the valuable and easiest tools in the technical analysis.• The graphical presentation of the data helps the investor to find outthe trend of the price without any difficulty.Charts are also used to• Spot the current trend for buying and selling• Indicate the probable future action of the market by projection• Show the past historic movement• Indicate the important areas of support and resistance
  14. 14. Types of ChartsPoint and Figure Chart200025003000350040004500500055006000NIFTYLine Chart
  15. 15. Candle- Stick Chart Bar Charthttp://www.investopedia.com/university/technical/techanalysis7.asp
  16. 16. Flags and Pennants Head & ShouldersChart Patternshttp://www.investopedia.com/university/technical/techanalysis8.asp
  17. 17. Cup & Handle Rounding Bottom