technical analysis intro
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Introduction to Technical Analysis
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Schools of Stock AnalysisFundamental analysisTechnical analysis
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Fundamental AnalysisA fundamental analyst tries to discern
the logical worth of a security based on its anticipated earnings stream
The fundamental analyst considers:Financial statementsIndustry conditionsProspects for the economyEtc.
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Limitations of Fundamental AnalysisTime ConstraintDifficult to project future growth based on
historical pricesBased on estimates, assumptions &
forecastsSpecific to company & industryBias of AnalystDifficult to estimate fair/ intrinsic value
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Technical AnalysisA technical analyst attempts to predict the supply and
demand for a stock by observing the past series of stock prices & volumes
Financial statements and market conditions are of secondary importance to the technical analyst
Does not attempt to measure a security's intrinsic value, but instead use charts & other tools to identify patterns that can suggest future activity
Is the process of identifying trend reversal at an early stage to formulate the buying & selling strategy, to gain from such a change
The basic foundations or premises of technical analysis are that a stock's current price discounts all information available in the market, that price movements are not random, and that patterns in price movements, in very many cases, tend to repeat themselves or trend in some direction.
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Why Technical AnalysisIts versatileCan be learnt by anybody: No finance,
economics or statistician background required
Can be applied to any time frame of analysisCan be applied to Commodity, Currency as
well apart from stocksUsing technical analysis informed decision to
trade/ invest can be taken
Comparison between Technical & Fundamental Analysis
Technical Analysis Fundamental Analysis
Only focuses on past price data
Focuses on financial strength,earning, profitability, economic outlook etc.
More useful in predicting short term price movement
More useful in predicting long term price movement
Not committed to buy or holdpolicy
Committed to buy or holdpolicy
Target price is estimated based on study of price & volume data
Target price is estimated based on study of company financials and business outlook
Use of Technical AnalysisTechnical Analysis highlight price situations thatmay be worth considering in researching aninvestment activity.
Technical Events can be used by investors tomake more informed decisions about when to:
Enter a new position (either a Long position or a Short position)
Close an existing position Wait for a better time to take action
Can we do trading using the data
Can we do trading using the data
Limitations of Technical Analysis
Technical Analysis is truly remarkable, but it has some
imperfections due to the following:
Economic Data Geopolitical Events Natural Calamities & Disasters Internal Conflict or War Acts of Terrorism
Components of Technical Analysis
Technical Analysis is based entirely on Analysis of:
Trend Price Volume Time
TrendIs an indication of basic direction of the
market price movement Careful & timely Analysis of the Trend can
help you earn a lot or can help you minimize your losses
Technical Analysis is based on the assumption that prices move in Trends
Types of TrendUptrend
Sideways
Downtrend
Types of Trend - UptrendA rising trend can be understood as a rising
support level wherein the bulls are in control and are pushing prices Higher
A Trend is said to be up if it is making continuous higher tops and higher Bottoms
A rising trend is defined by successively higher low-prices
Types of Trend - Uptrend
Types of Trend - SidewaysA Flat or a Sideways Trend is a situation
where prices move in a range in horizontal direction for a long period of time
A Sideways trend can be understood as a level wherein supply & demand are equal, prices move sideways as bulls & bears slug it out for control of market direction
Types of Trend - Sideways
Types of Trend - DowntrendA falling trend can be understood as a falling
resistance level wherein the bears are in control & are pushing prices lower
A Trend can be said to be down if there is a series of lower tops & lower bottoms
A falling trend is defined by successively lower high-prices
Types of Trend - Downtrend
Price as an Element of Technical Analysis
Price is an interaction or point where demand & supply meet
Price refers to any combination of the Open, High, Low & Close for a given Security/Index over a specific timeframe
Price of a security depends on the expectations of the buyer & the seller
If the investor expects the price to rise, he will buy the security & if he expects it to fall, he will sell it
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