L-9 Technical Analysis.pptx

8/16/2019 L-9 Technical Analysis.pptx

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Technical Analysis


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Technical analysis

•

Technical analysis difers signi cantly romfundamental analysis .

• Technical analysis is a controversial set o

techniques or predicting market directionbased on

– Historical price and volume behavior – Investor sentiment

• Technical analysts essentially search orbullish (positive and bearish (negativesignals about stock prices or market direction.


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Assumptions

• The market value o the scrip isdetermined by the interaction osupply and demand.

• The market discounts everything.• The market moves in trend.• Any layman kno!s the act that

history repeats itsel . It is true to thestock market also.


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"o! theory•

The "o! theory is a method that attempts tointerpret and signal changes in the stock marketdirection.

•

Historically# quite popular.

• The "o! theory identi es three orces$ – a primary direction or trend# – a secondary reaction or trend# and – daily %uctuations

• "aily %uctuations are essentially noise and are o

no real importance.


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"o! theory cont&

Hypotheses$'. o single individual or buyer can

in%uence the ma)or trend in themarket.

*. The market discounts everything.+. The theory is not in allible. It is not a

tool to beat the market but providesa !ay to understand it better.


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"o! theory cont&

• The trend is divided into primary#intermediate and short term trend.

• ,rimary trends are long-term# lastingseveral months or longer and are themost important.

• econdary trends are short-term

deviations rom the primary trend# lastinga e! days or a e! !eeks.• /inor trends are daily %uctuations. It is

also kno!n as oscillations or %uctuations.


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Trend• Trend is direction o movement. The

share price can either rise or all orremain %at.

• Trend reversal $ the rise or all inshare cannot go on orever. The pricemovement may reverse its direction.


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0everse is true !ith the bear market. Here rst phaseo all start !ith the abandonment o hopes. Thisresults in sale o shares.

In the second phase# companies are reporting lo!erpro ts and dividends. This !ould lead to sellingpressure.

The nal phase is characterised by the distress sale oshares. hares sell belo! their par values.


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upport and 0esistancelevel

•

upport level e1ists at a price !hereconsiderable demand or that stack ise1pected to prevent urther all in the pricelevel.

• The all in the price may be halted or thetime being or it may result even in pricereversal.

• In the resistance level# the supply o scrip!ould be greater than the demand and

urther rise in price is prevented. The sellingpressure is greater and the increase in price

is halted or the time being.


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Indicators• Market Volume : Higher volume gives strong

confirmation to price trend.• Breadth: The spread between the number of

advancing issues and the number of declining issues.

Advances means the number of shares whose priceshave increased from the previous day’s trading.Declines means the number of shares whose priceshave fallen from the previous day’s trading.

• Advances > declines = bullish• Advances < declines = bearish


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• Short sales: refers to selling of shares that are not owned. High volume ⇒ investors should be bearish.

2o! volume ⇒ investors should be bullish. or

High volume ⇒ investors should be bullish.

2o! volume ⇒ investors should be bearish.

• Odd lot trading: (less than !! shares"# $mall investors tend tomiss %ey mar%et turning points.

& 'dd&lot buying heavy investors should be bearish. & 'dd&lot selling heavy investors should be bullish.• Relative strength index:


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Moving Averages:• Average price over some historical period ()

wee%s or *!! days"• +hen current price crosses the average a

trading signal occurs• ,ullish signal when the current price rises

above the moving average• ,earish sign when the current price falls below

the moving average


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Moving Average: Average over a

given interval, continuouslyupdated.

,riceAnd/.A.

Time

,rice

/oving Average

3earish ignal

Bullish Signal

Averaging interval


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4harts• ,oint and gure charts• 3ar charts• 4hart patterns$ - 5 ormation


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• Tops and 3ottoms• "ouble Top and 3ottom


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• Head and houlders


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• Inverted Head and houlders


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• Triangles$ symmetrical# ascending anddescending

ymmetrical triangle


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• 6lags


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Thank you

Documents

L-9 Technical Analysis.pptx