Technical Analysis

Technical Analysis

Technical Analysis Presented By, “SUMMER of 69” Arijit Das (03), Srijit Dutta (), Parakram Majumder(), Tithi Shaoo(), Eshita Sadhukhan (), Atanu Ghosh().

Technical Analysis Difference between Technical Analysis and Fundamental Analysis:Technical Analysis Technical analysis involves the development of trading rules based on past price and volume data for individual stocks and the overall stock market

Fundamental Analysis Fundamental analysis involves economic, industry, and company analysis that lead to valuation estimates for companies, which can then be compared to market prices to aid in investment decisions.

What is Filter Rule? It assists investor to buying or selling ant stock. For example, an analysis may set his/her own filter rule at 15%. In that particular case, if any stock moves up by 15% from subsequent low, then buy the stock. If any stock moves down by 15% from subsequent high, then sell the stock. So, main objective is to set the percentage of the filter rule. Assumptions of Technical Analysis:  Price discounts everything.  Price usually always moves in trends  History repeats itself over a time Advantages of Technical Analysis: 

Unlike fundamental analysis, technical analysis is not heavily dependent on company’s financial statement. Problems of financial system: o

Lack of information

o

GAAP allows firms to publish select reporting procedure.

o

Many physiological and other non- quantifiable factors do not show in financial statement.

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Trends are easily found: Taking a look at a moving average line quickly displays a price that is trending or stuck in a range

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Charting is quick and inexpensive

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Patterns are easily identified.

Challenges of Technical Analysis: 

Challenges to the basic assumptions like empirical test of Efficient Market Hypothesis (EMH) show that price does not move in trends.

Technical Analysis 

Challenges to technical rule. o

Rules that worked in past may be repeated.

o

Successful rule may become less successful in future.

Typical Stock Market Cycle:

Price Peak

Flat Trend Channel

Declining Trend Channel Sell Point

Declining Trend Channel Rising Trend Channel Trough

Rising Trend Channel Trough

Buy point

Time

Technical Analysis Technical Analysis :

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Charting :using chart and graphs o

Bar Chart : a graph that indicates the high, low, and closing price movements for a stock during a specified period

o

Trend line penetration: the point at which the trading line crosses the trend line

Measure and indicators used by technical analysis o

Dow theory: a technique used to predict reversals in market patterns by examining the movements of the Dow Jones Industrial Average and the Dow Jones Transportation Average

o

Moving average theory: stock price averages for a fixed time frame, say 100 days, computed for a particular period of time

o

Technical indicators: measures used by technical analysts to forecast future movements in stock prices

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Market breath indicators: measure the trading volume and the range of trading that takes place in the market

Technical Analysis o

Advance / decline line: a graph that depicts the results computing the difference between the number of advancing stocks and the number of declining stocks over some time period

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Sentiment indicators: technical indicators that are used to monitor the “mood” or psychology of the market

Stock Selection Criteria: 

Value of Stocks

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Growth of Stocks

Trends: 

Up-trends

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Down- trends

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Rang –bound

Trend behavior: 

Trends tend to persist over time.

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Trends can be measured using TRENDLINES.

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A famous quote about trends advises that "The trend is your friend”.

Patterns and Indicators: 

How can you organize the endless stream of stock chart data into a logical format?

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The oldest form of interpreting charts is PATTERN ANALYSIS .

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Pattern analysis gains its power from the tendency of charts to repeat the same bar formations over and over again.

Complex Corrections: 

Flat

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Irregular

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Triangle