Success probability of technical analysis ppt

SUCCESS PROBABILITY

OF TECHNICAL ANALYSIS

WHAT IS STOCK ANALYSIS?

An attempt to determine the future activity of an instrument, sector or market.

1-Fundamental analysis2-Technical analysis

TECHNICAL ANALYSIS

An attempts to forecast future price trends base on historical data.– It was established as early as 18th century

Approaches to technical analysis: such as the – Dow Theory, – Elliot wave theory, – Fibonacci's analysis, – Cyclical analysis and so on.

• However, the most commonly used methods can be divided into two major branches: namely – chart analysis (also called charting) and – statistical approach (indicators)

BASIC ASSUMPTIONS OF TECHNICAL ANALYSIS

1. Price discounts everything.2. Price moves in trends.3. History repeats itself over time!

TECHNICAL ANALYSIS v/s FUNDAMENTAL ANALYSIS

The Differences:

1. Charts vs. Financial Statements:2. Time Horizon: (short and long term investment)3. Trading vs. Investing: 4. Price movement vs. Economic factors:

WHY WE USE TECHNICAL ANALYSIS?

1. Shows best entry and exit points for a trade.2. Helps to identify a trend3. Allows investors to judge the direction4. Allowing investors to make predictions on future trends5. When it is used in conjunction with fundamental analysis, it minimizes

the chances of losses.

Drawbacks of Technical Analysis:1. Useful only for short-term trade.2. Depends heavily on a person’s opinion or interpretation.3. It is more a study of probabilities than of actual value.

WHAT IS CHART

Charts are the heart and soul of technical analysis.

• The basic data on which the chart is drawn are:1-Date2-Price Band (Open, High, Low & Close)3-Volume

Chart Properties: – The Time Scale: (Daily, Weekly, Monthly)

– The Price Scale: (Arithmetic-change by Rs.) or (logarithmic-change by %)

TYPES OF CHARTS

1. Line chart2. Bar chart3. Japanese candlestick chart

TOP CANDLESTICK PATTERNS

Bullish Reversal candlestick patterns:

Bearish candlestick patterns:

TRENDS ON CHART

1. Upward (Bullish)2. Downward (Bearish)3. Sideways (Flattish)

PEAK AND TROUGH ANALYSIS

Peak: (rule)1. Higher then previous day. &2. Higher or equal then following 3days.

Trough: (rule)1. Lower then previous day.2. Lower and equal then following 3days.

WHY VOLUME IS IMPORTANT

• If stock going down + heavy volume= sell signal

• If stock going up + heavy volume= buy signal

• If Stock going up + low volumes= may be a falls indicator, stay away from such type of stock’s.

CHART PATTERNS

A. “Reversal” pattern signals that a prior trend will reverse.1. Double Top and Bottoms (Reversal):2. Triple Tops and Bottoms (Reversal)3. Head and Shoulders (Reversal)4. Wedge (Reversal)5. Rounding Bottom (Reversal)

B. “Continuation” pattern, signals that a trend will continue.1. Flag and Pennant (Continuation)2. Triangles (Continuation):3. Rectangle (Continuation):4. Cup with Handle (Continuation):

INDICATORS

I. VOLUME INDICATORS :1. ACCUMULATION/DISTRIBUTION2. MONEY FLOW INDEX (MFI)3. ON-BALANCE VOLUME (OBV)

II. TRENDS INDICATORS:1. AVERAGE DIRECTIONAL INDEX (ADX)2. BOLLINGER BAND:3. COMMODITY CHANNEL INDEX (CCI)4. GMMA5. MOVING AVERAGE:6. PARABOLIC SAR

III. OSCILLATORS:1. AVERAGE TRUE RANGE (ATR):2. CHAIKIN MONEY FLOW3. ICHIMOKU KINKO HYO4. MOVING AVERAGE CONVERGENCE DIVERGENCE (MACD):5. RELATIVE STRENGTH INDEX (RSI)6. STOCHASTIC OSCILLATOR