Risk fundamental & technical analysi- dow theory- chartss
1. SYNOPSIS
Risk – Meaning – Classification
Measurement of risk
Fundamental and Technical Analysis
Dow’s Theory
Charts
2. Definition of 'Risk'
Risk is the chance that an investment’s
actual return will be different than expected
It is expressed in terms of volatility of return
Risk includes the possibility of losing some
or all of the original investment
Generally the greater the risk associated
with an investment the greater the rate of
return investors will expect
6. Measurement of Risk
• Risk is measured by the variability of return
• The statistical tool often used to measure the unsystematic risk is
standard deviation
• Beta is used to measure the systematic risk
• Beta describes the relationship between the stock’s return and
index return
β =
Correlation Coefficient
Between Market and Stock
×
Standard Deviation of Stock Returns
Standard Deviation of Market Returns
β = 1 – indicates that the security's price will move with the market
β < 1 – indicates that the security will be less volatile than the market.
β > 1 - indicates that the security's price will be more volatile than the market
7. Fundamental analysis
• Fundamental analysis is a method of evaluating securities by attempting
to measure the intrinsic value of a stock.
• Fundamental analysis of a business involves analyzing its financial
statements and health, its management and competitive advantages, and
its competitors and markets.
• Fundamental analysis maintains that markets may misprice a security in
the short run but that the "correct" price will eventually be reached.
• Profits can be made by purchasing the mispriced security and then waiting
for the market to recognize its "mistake" and re-price the security.
9. Technical analysis
• Technical analysis is the evaluation of securities by means of
studying statistics generated by market activity, such as past
prices and volume.
• 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.
• Start of Bull Phase = higher Low + break above previous High.
• End of Bull Phase = lower High + break below previous Low.
12. Dow’s theory
Dow theory remains as the foundation of technical analysis. It was
formulated from a series of Wall Street Journal editorials authored
by 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
14. Charts
• Charts are the valuable and easiest tools in the technical analysis.
• The graphical presentation of the data helps the investor to find out
the 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
15. Types of Charts
Point and Figure Chart
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NIFTY
Line Chart
16. Candle- Stick Chart Bar Chart
http://www.investopedia.com/university/technical/techanalysis7.asp
17. Flags and Pennants Head & Shoulders
Chart Patterns
http://www.investopedia.com/university/technical/techanalysis8.asp