This document provides information on different types of financial market analysis, including fundamental analysis and technical analysis. Fundamental analysis studies factors like economic conditions and company financials, while technical analysis focuses solely on price patterns and trends. Several technical analysis techniques are described, including trend lines, support and resistance levels, consolidation and breakouts. Common chart types for technical analysis like line charts, bar charts, and candlestick charts are also mentioned. The document aims to explain the basic concepts and approaches of both fundamental and technical analysis.

2. TYPES OF ANALYSIS
Fundamental Analysis
Study fundamental factors
Technical Analysis
Study Price action alone

3. Fundamental vs. Technical
Fundamental Analysis Technical Analysis
• Demand/Supply
Analysis
• Gather news
• Examine economy
data
• Study the related
industry
• Study related markets
• Study the cause of
market movement
• Study the price action
• Study historical and current
price movements
• Compare the current price
movements with the
historical price movements
• Use this comparison as a
tool to forecast future price
action
• Study the effect i.e.
historical price movement

4. DOES TECHNICAL ANALYSIS WORK?
DO WE HAVE A CHOICE?
Good technical analysis is perhaps the
only tool which gives an individual / a
common man a decent chance vis-à-vis
the professional / commercial
organizations!!

5. FUNDAMENTAL V/S TECHNICAL
The fundamentalists study the
cause of market movement
While
The technicians study the
effect!!

6. Fundamental Analysis -
Components
1. Economic Analysis
2. Industry Analysis
3. Company Analysis
Purpose : To assess the Intrinsic value
of shares. Enable Value Investing

7. Economic Analysis factors
GDP, GNP
Monetary Policy
Inflation
Interest Rates
International Influences
Fiscal policy
Budget deficits
FDI
FII
Government
spending
Exports
Tax policy
Money flow
Cross-border
investments
NRI investments

8. Industry Analysis - Factors
Industry life cycle
Product life cycle
New entrants
Competitor threat
Market behaviour
Employment data
SEZ
Exports, Imports

9. Company Analysis Factors
Brand identity
Product diversification
Pricing
Accessibility of inputs
Financing / funding
New ventures
Purchasing power
Consumer behaviour
Profitability ratios
Liquidity ratios
Turnover ratios
ROE /ROI
Leverage ratios
Capital structure
Cash inflows
Capital assets
Growth / solvency/
efficiency ratios

10. Technical Analysis-
Is it required?
Martin J. Pring, goal of technical analysis is “to
identify a trend and ride with it until enough
evidence proves that the trend has reversed
direction”
market action does take into account every aspect
/ factor (such as demand- supply situation, other
fundamentals, political factors, psychology of
investors, sentiments, emotions, weather
conditions, etc.)

11. INTRODUCTION
Technicians (also known as
quantitative analysts or chartists)
usually look at price, volume and
psychological indicators over time.
They are looking for trends and
patterns in the data that indicate future
price movements.
Basically, Technical analysis is a
tool to study price action alone.

12. Technical Analysis
 Technical Analysis is not concerned with the
intrinsic value of a share or commodity future.
 It deals with the forces of Demand & Supply as
reflected in the behavior of the market.
 It is a study of predicting future price
movements, based on the earlier price
movements in the scrip .
 It is a study of Prices with Charts being the
Primary Tool.

13. BASIC ASSUMPTIONS:
Theory of Technical Analysis is based
on three basic premises:
Market Action discounts everything.
Prices move in trends. Trends tend to
persist!
History repeats itself.

14. DOW THEORY
Originated by Charles Dow
Founder of the Dow Jones Company and editor of Wall Street Journal
 Mr. Charles Dow is known as the Father of Modern Day Technical
Analysis.
In 1897, Charles Dow developed two broad market averages.
The "Industrial Average" included 12 blue-chip stocks (Dow Jones
Industrial Average)
“Rail Average" INCLUDED 20 railroad enterprises. (Dow Jones
Transportation Average).
The Dow Theory is the ancestor of most principles of modern technical
analysis.
This theory was first stated by Dow in a series of columns in the Wall Street
Journal between 1900 and 1902.
Dow (and later Hamilton and Rhea) believed that market trends forecast
trends in the economy.

15. BASIC TENETS OF DOW
THEORY
Averages by discounting everything.
The market has three basic trends.
Major Trend has three phases
Volume must confirm the trend.
A trend is assumed to be in effect till
it gives definite signals that it has
reversed!

16. DOW THEORY - BASIC TRENDS
Primary Trend
Called “the tide” by Dow, this is the trend that
defines the long-term direction (up to months or
even years). Primary trend is the major
underlying trend in the market.
Secondary / Intermediate Trend
Called “the waves” by Dow, this is medium
term movements or departures from the primary
trend (weeks to months)
Minor Trend (Day to day fluctuations)
Called “ripples” by Dow they generally show
nervousness with rapid up or down swings. Not
significant in Dow Theory

17. TRENDS

18. DOW THEORY - BASIC
TRENDS

19. EXPLAINING BASIC
TRENDS

20. Up trendline

21. Down trendline

22. Elliot Wave theory
Ralph Nelson Elliot developed the
concept in the 1930s.
collective investor psychology (or crowd
psychology) moves from optimism to
pessimism and back again in a natural
sequence.
These swings create patterns, as
evidenced in the price movements of a
market at every degree of trend

23. Elliot Wave
In the first small
five-wave
sequence,
waves 1, 3 and 5
are motive, while
waves 2 and 4
are corrective.
look at charts of
market action
and identify any
completed five-wave
and three-wave
structures

24. Elliot wave

25. THE TREND LINES
The trend line is the simplest of all technical tools
Some basic rules on trend line applications:
Trend lines should touch at least two points (highs or
lows) and possibly be confirmed by a third point.
The breaking of a trend line is the best signal that the
market has changed direction.
The longer the trend line stays intact and the more
times the trend line is tested signifies the strength of
the underlying trend.
It is important to note that the steepness of a trend line
has a major significance to the underlying trend.

26. Support and resistance line

27. PLOTTING A TREND LINE
Union Bank (45.6000, 46.5000, 45.1500, 45.3500, -0.30000)
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Union Bank Of India
Plotting a Trend Line -
Join Any 2 Consecutive Bottoms
to plot a Trend Line to judge an Uptrend.
O
Point No 2
O
Point No 1

28. Trend Lines
There are three basic
kinds of trends:
An Up trend where
prices are generally
increasing. (Bullish)
A Down trend where
prices are generally
decreasing. (Bearish)
A Trading Range.
(Range bound trend)

29. UPTREND:
Higher tops and
higher bottoms.
DOWNTREND:
Lower tops and
Lower bottoms.
SIDEWAYS:
Narrow range
movements.

30. ALL TREND LINES CAN BE MEASURED
IN DEGREE USING A SIMPLE COMPASS.
Prof. A. G. Mendhi

31. Line 1- Steep Line – Up trend is rising too
fast & not favorable.
Prof. A. G. Mendhi

32. 45 degrees- This line is the most preferred -signifies a more
stable trend where prices are moving at a reasonable speed

33. Flat trend Signifies the general
uncertainty of a trend-less market.

34. SUPPORTS AND RESISTANCES
SUPPORT:
In some measure, the word support is
self-explanatory. It signifies important
reaction to lows or troughs. It is that
region where the demand is high
enough to overcome supply pressure.
More often than not, a support level is
identified by a previous low.
RESISTANCE:
It is the opposite of support and
represent a price level where selling
pressure overcomes buying pressure
and a price rise is turned back. Quite
often, a resistance level represented is
identified by a previous peak.
HOW TO
MEASURE
THE
SIGNIFICAN
CE OF
SUPPORT
AND
RESISTANCE
LEVELS?
1. The time
spent there
2. Volume
of activity
3. Whether
the S&R level
is recent

35. SUPPORT LINE
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Union Bank Of India
Plotting a Trend Line -
Extend The Line As The Price Moves Further
This Line Will Now Act As A Good Support
O
Point No 2
O
Point No 1
h
h
Support Level
Or Buying Level
Support Level
Or Buying Level
Union Bank (45.6000, 46.5000, 45.1500, 45.3500, -0.30000)

36. RESISTANCE LINE
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Turnear (1,710.00, 1,725.00, 1,687.00, 1,697.00, -52.0000)
RESISTANCE
RESISTANCE
MCX - Turnear
2004 Aug Oct Nov 2005 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2006 Feb Mar Apr

37. Channel Line : Support & Resistance

38. SUPPORT AND
RESISTANCE
SILVER 1 KG - 1 MONTH (10,409.00, 10,430.00, 10,251.00, 10,282.00, -110.000) 12100
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39. CONSOLIDATION AND
BREAKOUT
Look out for breakouts from a long
consolidation / range bound phase for
good opportunities.
1. Longer the phase of consolidation, more
significant the breakout,
2. Market may retreat to earlier position
hence, wait to reconfirm the breakout and
3. Watch the volumes to avoid false
breakouts.

40. TYPES OF CHARTS
Line Chart
Bar Chart
Point and Figure chart
Japanese Candle Stick Chart
Important price information should
cover high, low, open and close
prices

41. LINE CHART
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For plotting line charts only one price field can be used – preferably close
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GOLD 10GM - 1 KG - 1 MONTH (6,268.00, 6,287.00, 6,268.00, 6,276.00, +9.00000)
October November December 2005 February March Apri l May June July August September

42. Drawing Bar Charts
Each bar is composed of
4 elements:
Open
High
Low
Close
Note that the candlestick
body is empty (white) on
up days, and filled /
solid (black or some
color) on down days
Open
Close
High
Low
Standard
Bar Chart
Japanese
Candlestick
Open
Close
High
Low
Standard
Bar Chart
Japanese
Candlestick

43. Bar chart

44. Chart PAttern
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.
A reversal pattern signals that a prior trend
will reverse upon completion of the pattern.
A continuation pattern, on the other hand,
signals that a trend will continue once the
pattern is complete.

45. Continuation and Reversal
Patterns
Head & Shoulders
Inverted Head &
Shoulders
Triple Tops
Triple Bottoms
Double tops
Double Bottoms
Cup and HAndle
Symmetrical
Triangles
Ascending Triangles
Descending
triangles
Flags
Pennants
Gaps

46. Trend Reversal pattern – Head
& Shoulder ; inverted head &
shoulder

47. Double Tops and Double
Bottoms

48. Triple Tops and Triple
Bottoms

49. Bullish Continuation pattern –
cup and handle

50. Rounding bottom / saucer
bottom – long term reversal
pattern

51. Triangles
The symmetrical triangle is a pattern in which
two trendlines converge toward each other.
In an ascending triangle, the upper trendline is
flat, while the bottom trendline is upward
sloping. This is generally thought of as a bullish
pattern in which chartists look for an upside
breakout.
In a descending triangle, the lower trendline is
flat and the upper trendline is descending. This
is generally seen as a bearish pattern where
chartists look for a downside breakout.

52. Triangles

53. Pennant and flag
Pennants have converging trendlines
during their consolidation period and they
last from one to three weeks
a flag resembles a parallelogram (or
rectangle) marked by two parallel trend
lines that tend to slope against the
prevailing trend.
The pennant, however, is identified by two
converging trend lines and more horizontal
which resembles a small symmetrical
triangle

54. Flag and Pennants

55. Wedge
A technical chart pattern composed of
two converging lines connecting a series
of peaks and troughs.
Falling wedges indicate temporary
interruptions of upward price rallies.
Rising wedges indicate interruptions of a
falling price trend.

56. Falling Wedge – continuation or
reversal

57. Point and figure chart – double
top
Point & Figure charts
use rising columns of
X's and descending
columns of O's to
represent these price
movements.
double top buy signal
occurs when a column
of Xs, which are used
to note rising prices,
exceeds the top of the
previous X column.

58. Point and figure – Double
bottom
A double bottom
sell signal is
given when a
column of Os,
which show
declining prices,
falls one box
below the
previous O
column.

59. Point and figure chart

60. Candlesticks
the candlestick has a wide part, which is
called the "real body".
This real body represents the range
between the open and close of that
day's trading. When the real body is
filled in or black, it means the close was
lower than the open.
If the real body is empty, it means the
opposite: the close was higher than the
open.

61. candlesticks

62. candlestick
If the upper shadow on the filled-in body
is short, it indicates that the open that
day was closer to the high of the day.
A short upper shadow on a white or
unfilled body dictates that the close was
near the high.

63. Candlestick signals
"long black body" or "long black line".
The long black line represents a bearish
period in the marketplace.
the "long white body", or "long white
line"-opposite of long black body
Spinning Tops are very small bodies and
can be either black or white.
It shows a very tight trading range
between the open and the close, and it
is considered somewhat neutral.

64. SPINNING top
If a spinning top formation is found after a
prolonged uptrend, it suggests that the bulls
are losing interest in the stock and that a
reversal may be in the cards.
On the other hand, if this formation is found
in an defined downtrend, it suggests that the
sellers are losing conviction and that a
bottom may be forming.

66. long bulling candles in August
1999 to March 2000 – dotcom
bubble

67. the stock opened near the low of the day and closed near the high.

68. Hammer – when a security trades significantly lower than its opening, but
rallies later in the day to close either above or close to its opening price.

69. Cadlestick signals
A hammer occurs after a security has been
declining, possibly suggesting the market is
attempting to determine a bottom.
If a stock opens down and the price drops
throughout the session only to come back
near the opening price at close, it is called a
hammer.
The tail is twice as long as the body

70. Inverted Hammer
(bullish)
Shooting Star (bearish)
The Hammer (bullish)
and Hanging Man
(bearish) patterns are
formed with a single
candlestick. The real
body is small and can be
either color. The lower
shadow is long...
typically, three times the
length of the real body.

71. HAMMER chart

72. Hanging man chart

73. Shooting star

74. Hanging Man
After three days a rising price, the
hanging man appears; on the following
day, the stock price drops by more
than 20%

75. Hanging man

76. Rising Three Methods
a very bullish chart.
It shows an upward trend on
day one with investors
taking a few trading
sessions to relax to prepare
for the next rise in price that
occurs on the fifth day.
Even though the pattern
shows us that the prices are
falling for three straight
days, a new low is not seen
and the bulls prepare for the
next leg up.

77. Bullish Mat Hold
begins with a long white day
and then, on the second day
of trading, the issue gaps up
and is a black day.
The second, third, and fourth
days see the issue falling off
slightly but not trading
outside the range of the long
white day on day one.
Finally, the last day in the
pattern is another long white
day that closes above the
close of the first long white
day.

78. Doji
Dojis form when a
security's open and close
are virtually equal.
A doji candlestick looks
like a cross, inverted
cross, or plus sign.
Alone, doji are neutral
patterns.

79. Long –legged doji
A type of candlestick formation where
the opening and closing prices are
nearly equal despite a lot of price
movement throughout the trading day.
This candlestick is often used to signal
indecision about the future direction of
the underlying asset.
Suggests a shift in the direction of the
trend may be coming.

80. Evening star an early indication that the
uptrend is about to reverse.
A bearish candlestick pattern
consisting of three candles :
1. The first bar is a large
white
candlestick located within an
uptrend.
2. The middle bar is a small-bodied
candle that closes
above the first white bar.
3. The last bar is a large
red candle that opens below
the middle candle and closes
near the center of the first
bar's body.

81. Morning star early indication that the
downtrend is about to reverse.
A bullish candlestick pattern
that consists of three candles
1. The first bar is a large red
candlestick located within a
defined downtrend.
2. The second bar is a small-bodied
candle that closes
below the first red bar.
3. The last bar is a large
white candle that opens
above the middle candle and
closes near the center of the
first bar's body.

82. Morning star

83. DOJI EVENING STAR

84. Tristar
signals a reversal in the
current trend. This pattern
is formed when three
consecutive doji
candlesticks appear at the
end of a prolonged trend.
a bearish tri-star pattern at
the top of the uptrend and
is used to mark the
beginning of a shift in
momentum.
a series of three
consecutive doji candles
leads to a sharp reversal of
the given trend

85. HARAMI
An excellent
pattern for
indicating a trend
change or pause
is the Harami.
the second real
body must form
completely inside
the first. The color
of the second
candle needs to
be the opposite of
the first.

86. HARAMI - Bullish Harami Candlestick
pattern will forecast short-term
price reversals.

87. Harami bullish

88. HARAMI - BEARISH

89. HARAMI - BEARISH

90. Piercing Line
The Piercing Line
(bullish)
engulfing pattern except
the second candlestick
should close at least
halfway into the real body
of the first
Dark Cloud Cover
(bearish

91. Piercing line chart

92. DARK CLOUD COVER

93. Engulfing pattern
Engulfing pattern. It
is characterized by
the second day's
real body completely
engulfing the first
day's.

94. Engulfing -bullish

95. Engulfing bearish

96. Technical Tools
Moving Averages
Price Patterns
Indicators

97. MOVING AVERAGE
ANALYSIS
Moving averages are used to provide a smooth reference
point for
Individual Assets
Market indices
Commodity prices
Interest rates
Foreign exchange rates
Changes each day are noted.
○ Most recent day is added and oldest day is dropped

98. MOVING AVERAGES
Three types of moving
averages-
1. Simple Moving Average,
2. Linear Weighted Average and
3. Exponential Average

99. Example of simple moving average
DAY PRICE CALCULATION SMA
1 440
2 446
3 461
4 446
5 463 (440+446+461+446+463) / 5 451.2
6 458 (446+461+446+463+458) / 5 454.8
7 472 (461+446+463+458+472) / 5 460.0
8 470 (446+463+458+472+470) / 5 461.8
9 464 (463+458+472+470+464) / 5 465.4
10 476 (458+472+470+464+476) / 5 468.0
11 481 (472+470+464+476+481) / 5 472.6

100. LINEAR WEIGHTED AVERAGE
Day Weight Price Weighted
1 1 100 100
2 2 1 120 240 120
3 3 2 110 330 220
4 4 3 130 520 390
5 4 135 540
Total 10 1190 1270
So a 4 day weighted moving average 119 127
(= 1190 / 10 = 119.00)
More Weight is given to the latest data
& Less Weight is given to the past data.
 Used for Long term Averages.

101. TYPES OF AVERAGES
Linearly weighted average gives higher
weight to recent prices and less weight to old
prices and average is taken.
This still has the disadvantage of covering
only the length of the average itself
(acceptable to commodity futures which have
limited life).
Exponentially smoothed average does not
have this drawback.

102. SMOOTHING FACTOR
TO CALCULATE A SMOOTHING
FACTOR FOR FIVE DAY EM AVERAGE:
DIVIDE 2 BY 6
Smoothing Factor will be 0.33
For six days average, the smoothing factor
will be 2 divided by 7 i.e. 0.29
For ten days average, the smoothing factor
will be 2 divided by 11 i.e. 0.18 and so on…..

103. Example of 5 day Exponential Moving
Average
DAY PRICE CALCULATION EMA
1 440 Start 440.00
2 446 441.98
3 461 448.26
4 449 448.50
5 463 453.29
6 458 454.84
7 472 460.50
8 470 463.64
9 464 463.76
10 476 )] 467.80
11 481 472.15

104. STRATEGY USING MOVING
AVERAGES
31
November
GOLD KG-N (8,015.00, 8,025.00, 7,970.00, 8,004.00, -29.0000)
7 14 21 28 5
December
12 19 26 2
2006
9 16
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BUY
NCDEX - Gold KG - N SELL

105. Example of Moving averages:

106. Long & Short Moving
Averages
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PalmOil (1,466.00, 1,474.00, 1,460.00, 1,470.00, -8.0000)
March April May June July August September
Prof. A. G. Mendhi
1100
P
O
P
O
P
O
P
SYSTEM BUYS WHEN 3 PERIOD MOV AVG CROSSES 18 PERIOD
DENOTED BY AN UP ARROW
SYSTEM SELLS ON VICE VERSA DENOTED BY A DOWN ARROW

107. CALCULATING RSI
• As with any relative strength study, the RSI compares today’s
closing prices with prices over the past x days; the price
comparison is relative to itself! More specifically the relative
comparison is achieved by comparing x number of day up
averages to x number of day down averages. These up and down
averages uncover the direction of the strength in the market.
• 100
• RSI = 100 – --------
• 1+RS
• Average of 14 day’s close UP
• Where.. RS = --------------------------------------------------
• Average of 14 days close DOWN
Prof. A. G. Mendhi

108. Prof. A. G. Mendhi

109. Indicators
Indicators are used in two main ways: to
confirm price movement and the quality
of chart patterns, and to form buy and
sell signals.
There are two main types of indicators:
leading and lagging. A leading indicator
precedes price movements, giving them
a predictive quality, while a lagging
indicator is a confirmation tool because
it follows price movement.

110. Oscillators
Oscillator indicators have a range, for
example between zero and 100, and
signal periods where the security is
overbought (near 100) or oversold (near
zero).
MACD
Stochastic
RSI

111. RSI

112. CML vs SML
The CML is a line that is used to show the rates of return,
which depends on risk-free rates of return and levels of
risk for a specific portfolio. SML, which is also called a
Characteristic Line, is a graphical representation of the
market’s risk and return at a given time.
2. While standard deviation is the measure of risk in CML,
Beta coefficient determines the risk factors of the SML.
3. While the Capital Market Line graphs define efficient
portfolios, the Security Market Line graphs define both
efficient and non-efficient portfolios.
4. The Capital Market Line is considered to be superior
when measuring the risk factors.
5. Where the market portfolio and risk free assets are
determined by the CML, all security factors are
determined by the SML.

113. CML

114. SML

115. REFERENCES:
Technical Analysis of the futures markets by John J.
Murphy (New York Institute of Finance)
Technical analysis explained by Martin J. Pring
Getting started in Technical analysis by Jack D. Schwager
Technical Analysis for the Rest of Us By Clifford Pistolese
Publisher: Tata McGraw Hill
Numerous websites of commodity exchanges – training
modules
Commodity futures & options – a step-by-step guide to
successful trading by George Kleinman
Inter market Technical Analysis - Trading Strategies for the
Global Stock, Bond, Commodity, and Currency Markets
by Wiley

116. Thank You
and Best
wishes for
your
internal

117. Questions
Distinguish Fundamental and Technical
analysis
Write brief notes on a)Economic analysis b)
Industry analysis c) company analysis
Explain the types of charts and chart patterns
applied in Technical analysis
Describe Dow theory and Eliot wave theory
Explain in detail the candlestick patterns and its
signals.