HAZARIMAL SOMANI COLLEGE OF COMMERCE &
GROUP NO: 2
UNDER THE GUIDANCE OF
PROF. DEBJANI SINGHA
SUBJECT: INVESTMENT AND PORTFOLIO
NAME OF STUDENT ROLL NO.
PRATIK AJMERA 3202
MAMTA GAONKAR 3211
MOHEMMAD ACHHE 3222
KANNAN NADAR 3224
ABHINAV PATEL 3229
NEHA SANE 3235
ASHWINI SHINDE 3238
Technical analysis takes a completely different
approach; it doesn’t care one bit about the
“Intrinsic value” of a company. Technical
analysts are only interested in the price
movements in the market.
Despite all the fancy jargons and techniques it
employs, technical analysis really just studies
supply and demand in a market in an attempt
to determine what direction, or trend, will
continue in the future and to gauge investor
sentiments. In other words, technical analysis
attempts to understand the emotions in the
market by studying the market itself, as
opposed to its components.
THE BASIC ASSUMPTIONS UNDER TECHNICAL ANALYSIS
Technical analysis is a method of evaluating securities by analyzing the
statistical data generated by market activity, such as past prices and
volume of trading of a particular share. Technical analysts do not attempt
to measure a security’s intrinsic value, but instead use charts and tools to
identify patterns that can suggest future activity.
The field of technical analysis is based on three assumptions:
(1) The market discounts everything;
(2) Price moves in trends,
(3) History tends to repeat itself.
(1)THE MARKET DISCOUNTS EVERYTHING.
A major criticism of technical analysis is that it only considers price
movement, ignoring the fundamental factors of the company.
(2) PRICE MOVES IN TRENDS.
In technical analysis, price movements are believed to follow trends
(3)HISTORY TRENDS TO REPEAT ITSELF.
Another important idea in technical analysis is that history tends to repeat
itself, mainly in terms of price movement
There are four main types of charts that are used by investors and
traders depending on the information that they are seeking and their
individual skill levels.
The chart types/ charting techniques are:
The line chart,
The bar chart,
The candlestick chart and
The point and figure chart.
All the above techniques are discussed in detail, notice how the data
used to create the charts is the same, but the way the data is plotted and
shown in the charts is different.
Line charts represents only the closing prices over a set period of time and are
therefore the most simple of the four charts. Line charts do not provide visual
information of the trading range for the individual points such as the high, low and
opening prices. But, the closing price is often considered to be the most vital price
in stock data compared to the high and low for the day and this is why it is the
only value used in line charts.
The bar chart is an extension of line chart in a sense that it adds much more key
information to each data point. The chart is made up of a series of vertical lines that
represent each data point. This vertical line represents the high and low for the
trading period, along with the closing price. The close and open are represented on
the vertical lines by a horizontal dash. The opening price on a bar chart is denoted
by the dash that is located on the left side of the vertical bar. As against this, the
close is represented by the dash on the right.
CANDLE STICK CHARTS
The candlestick chart is similar to a bar chart, but it is visually constructed.
Candlestick also has a thin vertical line showing the period’s trading range
which is similar to the bar chart. But the difference lies in the formation of a
wide bar on the vertical line, which indicates the difference between the open
and close. And like bar charts, candlesticks also rely heavily on the use of
colors to explain the activities of share price during the trading period.
THE POINT AND FIGURE CHART
The point and figure chart is not well known or used by the average investor
but it has had a long history of use dating back to the first technical traders.
This type of chart reflects price movements and is not as concerned about time
and volume in the formulation of the points. The point and figure chart
removes the noise, or insignificant price movements, in the stock, which can
distort traders view of the price trends. These types of charts also try to
neutralize the skewing effect that time has on chart analysis.
A chart pattern is a distinct formation on a stock chart that creates a
trading signal, or a sign of future price movements. Chartists use these
patterns to identify current trends and trend reversals and to trigger buy
and sell signals.
The theory behind chart pattern is based on the third assumption i.e.
history repeats itself. The idea is that certain patters are seen many times,
and that these patterns signal a certain high possibility of movement in a
stock. Based on the past trend of a chart pattern setting up a certain price
movement, chartists look for these patterns to identify trading
Trend one of the most important concepts in technical analysis. A
trends is really nothing more than the general direction in which
a security or market is headed.
Types of trend
There are three types of trend:
Sideways/ horizontal trend
As the names imply, when each successive peak and
trough is higher, it’s referred to as an upward trend. If
the peaks and troughs are getting lower, it’s a
downtrend. When there is a little movement up or down
in the peaks and troughs, it’s a sideways or horizontal
trend. If you want to get really technical, you might
even say that a sideways trend is actually not a trend on
a trend on its own, but a lack of a well-defined trend in
either direction. In any case, the market can really only
trend in these three ways: up, down or nowhere.
An uptrend, down trend or horizontal trend can continue for a long time
period, short time period or intermediate time period. Accordingly a trend of
any direction can be classified as a long term trend. Intermediate trend or a
short term trend. In terms of stock market, a major trend is generally
categorized as one lasting longer than 12 months. An intermediate trend is
considered to last between one month to quarter of a year and a near term is
anything less than a month.
A trend line is a simple charting technique that adds a line to chart to
represent the trend in the market or a stock. Drawing a trend is as
simple as drawing a straight line that follows a general trend. These
lines are used to clearly show the trend and also used in identification
of trend reversals.
A channel, or a channel lines, is the addition of two parallel trend lines that
act as strong areas of support and resistance. The upper trend line connects a
series of highs, while the lower trend line connects a series of lows. A channel
can slope upward, downward or sideways but, regardless of the direction,
the interpretation remains the same.
Support and resistance
Once the support of a trend is understood, the next major concept is that
of support and resistance you must have often heard about bulls and the
bears and the battle that goes around between them, or the struggle
between buyers demand and sellers supply,. This is revealed by the
prices a security seldom moves above resistance or below support.
Role reversal refers to situation where the role of support or resistance is
reversed, this happens when a resistance or support level is broken. If the
price falls below a support level, that level will become resistance. If the
rises above a resistance level, it will often become support.
The importance of support resistance
As support and resistance analysis can be used to make trading decision and
identify a trend reversal it becomes an important part of trends.
Support and resistance levels both test and confirm trends and need to be
monitored by anyone who uses technical analysis. As long as the price of the
share remains between these levels of support and resistance, the trend is
likely to continue. It is important to note, however, that a break beyond a
level support or resistance does not always have to be a reversal.
Head and Shoulders
This is one of the very popular and reliable chart patterns in technical
analysis. It is a reversal chart pattern that when formed signals that the
security is likely to move against the previous trend.
Cup and Handle
A cup and handle chart is a bullish continuation pattern in which
the upward trend has not stopped but has only paused for some
time and continue in an upward direction once the pattern is
confirmed. This price pattern forms what looks like a cup which is
preceded by an upward trend the handle follow the cup formation
and is formed by a generally downward sideways movement in the
Double Tops and Bottoms
This chart pattern is another well-knows pattern that signals a trend
reversal it is considered to be one of the most reliable and is commonly
used these pattern are formed after a sustained trend and signal to chartists
that the trends is about to reverse the pattern is created when a price
movement test support or resistance levels twice and is unable to break
through the price movement has twice tried to move above a certain price
level after two unsuccessful at pushing the price higher the trend reverses
and the price heads lower in the case of a double bottom the price
movement has tried to go lower twice .
Triangles are some of the most well-known chart pattern used in technical
analysis symmetrical triangle ascending and descending triangle are the three
types of triangles which vary in the way they are constructed and what they
imply these chart pattern are considered to last anywhere from a forth night
to several months
Flag and Pennant
When there is a sharp price movement followed by a generally sideways price
movement these two short term chart pattern are the continuation pattern that
are formed this pattern is then complete upon another sharp price movement
in same direction as the move that started the trend the pattern are generally
thought to last from one to three weeks.
The wedge chart pattern can be either a continuation or reversal pattern it is
similar to asymmetrical triangle generally shows a sideways movement the
other difference is that wedge tend to form over longer period usually
between three and six months.
Triple Tops and Bottoms.
Another type of reversal chart pattern I chart analysis triple tops and triple
bottoms these act in a similar fashion as head and shoulder and double tops
and bottoms but are not equally prevalent in charts these two chart patterns
are formed when the price movement test a level of support or resistance
three times and is unable to break through this signals a reversal of the prior
trend triple tops and bottom can lead to confusion during the formation of the
pattern because they can look similar to other chart pattern after the first two
support test are formed in the price movement .
A rounding bottom also referred to as a saucer bottom is a long term reversal
pattern which signals a shift from a downward trend to an upward trend this
pattern is traditionally thought to last anywhere from several months to
several years .
A rounding bottom chart pattern looks similar to a cup and handle pattern but
without the long term nature of this pattern and the lack of a confirmation
trigger such as the handle in the cup and make it a difficult pattern to trade.
There are many technical indicators which when referred collectively may create
great deal of confusion and may not make any sense but when studied on one on
one or individual basis can be of great help to the technical analyst.
• Moving Averages
The moving average of a stock index is the
average level of the index over a given
interval of time a 52 week moving averages
tracks the averages index value over the
most recent 52 weeks each week the
moving average is recomputed by dropping
the oldest observation and adding the
Day Advances Declines Net Advances Cumulative
1 802 748 54 54
2 917 640 227 331
3 703 772 -69 262
4 512 1122 -610 -348
5 633 1004 -371 -719
Advance Decline Ratio / Market Breath
The breath of the market is a measures of the extent to which movement in a
market index is reflected widely in the price movement of all the stocks in the
Relative strengths measures the extent to which a security has outperformed or
underperformed either the market as a whole its particular industry.
Market volume is sometimes used to measures the strength of a market rise or
Trin = volume declining/no. declining
Volume adv. / no. adv.
Confidence index is a ratio of trading of low rated bonds to high rated bonds.
Call option gives investors the right to buy a stock at a “fixed” exercise price and
therefore are a way of betting on stock price increases.
Spread refers to difference between selling price and buying price quoted for a
share, it should be understood here that unlike any other commodity (say,
chocolate) there is no MRP for a share, the seller would like to sell the shares he is
holding at the lowest possible price and the buyer would like to buy the same share
at the lowest possible price
Odd Lot Theory
In stock market, shares are traded in lot (say a lot of10 or 50 or 100 shares as the case
may be), therefore if marketable lot of a share is 10, every time trade for such share
takes place it would be traded in multiples of 10, such lot is known as ‘Marketable
‘Insiders ‘ means the people involved in conducting actual business of the company
or the people who are directly or indirectly related to such business activity, some
example of ‘Insiders’ are directors of the company, high ranked employees of the
Dow Theory the grandfather of trend analysis is the Dow Theory, named after its
creator, Charles Dow (who established The Wall Street Journal). Many of today’s
more technically sophisticated methods are essentially variants of Dow’s approach.
The Dow Theory posits three forces simultaneously affecting stock price:
The primary trend is the long-term movement of pries, lasting from several months
to several years.
Secondary or intermediate trends are caused by short-term deviation of prices
from the underlying trend line. These deviations are eliminated via corrections
when prices revert back to trend values.
Tertiary or minor trends are daily fluctuations of little importance.
Technical vs. fundamental analysis
Technical analysis and fundamental analysis are the two main schools of thought in
the financial markets. As mentioned earlier, technical analysis looks at the price
movement of a security and uses this data to predict its future price movements.
Fundamental analysis, on the other hand. Looks at economic factors, known as
fundamentals. The main differences between technical and fundamental analysis are:
Financial statements vs. charts: at the most basic level, fundamental analyst starts
with the financial statements while a technical analyst approaches a security from
the charts. A fundamental analyst tries to determine a company’s value by looking
at the balance sheet.
Time horizon: fundamental analysis takes a long term approach to analyzing the
market while technical analysis takes the short term road to judge a security. Whole
technical analysis can be used on a time frame of weeks, days or even minutes,
fundamental analysis often looks at data over a number of years.
Treading vs. investing: not only is technical analysis more short term in nature
that fundamental analysis, but the goals of a purchase or sale of stock are usually
different for each approach. In general, technical analysis is used for a tread,
whereas fundamental analysis is used to make an investment.
Criticism of technical analysis
Some critics see technical analysis as some kind of kind of taboo or black magic
that’s one of the reasons that, technical analysis has only recently begun to enjoy
some mainstream standing. While most analysis in stock market focus on the
fundamental side, just about any major brokerage now employs technical analysts as
Can fundamental & technical analyses be used simultaneously?
Although technical analysis and fundamental analysis are seen by many as total
opposites- the sugar and diabetes of investing many market participants have
experienced great success by combining the two. For example, some
fundamental analysts use technical analysis techniques to figure out the best time
to buy an undervalued security. By timing entry into a security, the gains on the
investment can be greatly improved.
Alternatively, some technical traders might look at fundamentals (for e.g.
reputation of the management, etc.) to add strength to a technical signal. For
example, if a sell signal is given through technical patterns and indicators, a
technical trader might look to reaffirm his or her decision by looking at some key
fundamental data. Oftentimes, incorporating best of two thoughts (i.e. the
fundamentals and technicals) can provide the best case scenario for a trade.