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Technical analysis intro


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Technical Analysis - Need
What is Trend

Published in: Economy & Finance
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Technical analysis intro

  1. 1. )
  2. 2. Schools of Stock Analysis  Fundamental analysis  Technical analysis 2
  3. 3. Fundamental Analysis  A fundamental analyst tries to discern the logical worth of a security based on its anticipated earnings stream  The fundamental analyst considers:  Financial statements  Industry conditions  Prospects for the economy  Etc. 3
  4. 4. Limitations of Fundamental Analysis  Time Constraint  Difficult to project future growth based on historical prices  Based on estimates, assumptions & forecasts  Specific to company & industry  Bias of Analyst  Difficult to estimate fair/ intrinsic value 4
  5. 5. Technical Analysis A technical analyst attempts to predict the supply and demand for a stock by observing the past series of stock prices & volumes  Financial statements and market conditions are of secondary importance to the technical analyst  Does not attempt to measure a security's intrinsic value, but instead use charts & other tools to identify patterns that can suggest future activity  Is the process of identifying trend reversal at an early stage to formulate the buying & selling strategy, to gain from such a change  The basic foundations or premises of technical analysis are that a stock's current price discounts all information available in the market, that price movements are not random, and that patterns in price movements, in very many cases, tend to repeat themselves or trend in some direction. 5
  6. 6. Why Technical Analysis  Its versatile  Can be learnt by anybody: No finance, economics or statistician background required  Can be applied to any time frame of analysis  Can be applied to Commodity, Currency as well apart from stocks  Using technical analysis informed decision to trade/ invest can be taken 6
  7. 7. Comparison between Technical & Fundamental Analysis Technical Analysis Fundamental Analysis Only focuses on past price data Focuses on financial strength, earning, profitability, economic outlook etc. More useful in predicting short term price movement More useful in predicting long term price movement Not committed to buy or hold policy Committed to buy or hold policy Target price is estimated based on study of price & volume data Target price is estimated based on study of company financials and business outlook
  8. 8. Use of Technical Analysis Technical Analysis highlight price situations that may be worth considering in researching an investment activity. Technical Events can be used by investors to make more informed decisions about when to:  Enter a new position (either a Long position or a Short position)  Close an existing position  Wait for a better time to take action
  9. 9. Can we do trading using the data
  10. 10. Can we do trading using the data
  11. 11. Limitations of Technical Analysis Technical Analysis is truly remarkable, but it has some imperfections due to the following:  Economic Data  Geopolitical Events  Natural Calamities & Disasters  Internal Conflict or War  Acts of Terrorism
  12. 12. Components of Technical Analysis Technical Analysis is based entirely on Analysis of:  Trend  Price  Volume  Time
  13. 13. Trend  Is an indication of basic direction of the market price movement  Careful & timely Analysis of the Trend can help you earn a lot or can help you minimize your losses  Technical Analysis is based on the assumption that prices move in Trends
  14. 14. Types of Trend Uptrend Sideways Downtrend
  15. 15. Types of Trend - Uptrend  A rising trend can be understood as a rising support level wherein the bulls are in control and are pushing prices Higher  A Trend is said to be up if it is making continuous higher tops and higher Bottoms  A rising trend is defined by successively higher low- prices
  16. 16. Types of Trend - Uptrend
  17. 17. Types of Trend - Sideways  A Flat or a Sideways Trend is a situation where prices move in a range in horizontal direction for a long period of time  A Sideways trend can be understood as a level wherein supply & demand are equal, prices move sideways as bulls & bears slug it out for control of market direction
  18. 18. Types of Trend - Sideways
  19. 19. Types of Trend - Downtrend  A falling trend can be understood as a falling resistance level wherein the bears are in control & are pushing prices lower  A Trend can be said to be down if there is a series of lower tops & lower bottoms  A falling trend is defined by successively lower high- prices
  20. 20. Types of Trend - Downtrend
  21. 21. Price as an Element of Technical Analysis  Price is an interaction or point where demand & supply meet  Price refers to any combination of the Open, High, Low & Close for a given Security/Index over a specific timeframe  Price of a security depends on the expectations of the buyer & the seller  If the investor expects the price to rise, he will buy the security & if he expects it to fall, he will sell it