TECHNICAL; ANALYSIS

CONCEPT

Technical analysis is used to mean fairly wide range

of techniques, all based on the concept that past

information on prices and trading volume of stocks

gives a picture of what lies ahead.

It attempt to explain forecast changes in security

prices by studying only the market data rather than

information about a company.

The technical analyst believe that the price of a

stock depends on supply and demand in the market

place.

CON..

Technical analyst concentrate the movement of

share prices.

Forecasting technique that utilize historical share

price data.

SEVERAL WAYS THE TECHNICIAN THINKS

Technician believe that behind the fundamental are

important factor

Technicians are not committed to buy and hold

policy

Technician do not separate income from capital

gains.

Technician act more quickly to make commitments

and take profits and losses

Technician insist that the market always repeats

DOW THEORY

Formulated by Charles H.Dow

He formulated a hypothesis that the stock market

does not move on a random basis.

According to Dow theory the market has three

movements.

Primary movement, secondary movement and

minor movements.

The primary movement is the long range cycle that

carries the entire market up or down, this is the long

term trend in the market.

The secondary reaction act as a restraining force

on the primary movement. These are in opposite

direction to the primary movement.

The minor movements which are the day-to-day

fluctuations in the market.

According to Dow theory the price movements in

the market can be identified by means of line chart.

In line chart the closing prices of shares or the

closing values of market index may be plotted

against the corresponding trading day.

Bullish trend

In the first phase the prices would advance with the

revival of confidence in the future of business.

This will prompt the investor to buy shares of

companies.

Bearish trend

In the first phase prices begin to fall due to

abandonment of hopes.

Second phase companies start lower profit

Third phase, prices fall still further due to distress

selling.

BASIC PRINCIPLES OF TECHNICAL ANALYSIS

The market value of a security is related to demand

and supply factors.

Trends in stock prices have been seen to change

when there is shift in the demand and supply factor.

PRICE CHART

Graphical representation id very basis of technical

analysis.

Security prices are charted.

A share may be traded in the market at different

prices on the same day.

Four prices are important, they are

highest price of the day

Lowest price of the day

Opening price and

Closing price.

BHARTI INFRA- MARKET PRICE MOVEMENT

Date

Open

Price

High

Price

Low

Price

Last

Traded

Price

Close

Price

28-Dec-12 200 200.85 188.65 191 191.65

31-Dec-12 191.85 195.5 188.25 193.65 193.7

1-Jan-13 194.7 199.8 194 197.65 197.75

2-Jan-13 198.3 204.35 197 202.2 201.5

3-Jan-13 200 206.5 200 204.7 204.35

4-Jan-13 205 210 202.35 207 207.15

7-Jan-13 207.85 209 206.1 207 207.4

8-Jan-13 207.55 211.05 201.7 203.2 202.95

9-Jan-13 204.25 207.9 203.3 204.95 205.05

10-Jan-13 205 207 203 205 205.1

Source :www.nseindia.com

CONT..

The closing price is very important price because

that is used in most analysis.

The prices are plotted in XY graph, where X

represent trading days and Y axis represent the

prices.

CONT..

180

185

190

195

200

205

210

Bharti Infra- price movement

Series1

PRICE CHARTS

Line Chart

Bar chart

Japanese Candlestick Chart

LINE CHART

The closing price of a share is plotted on the XV

graph on a day to day basis.

The closing price of each day would be represented

by point on XY graph.

All these points would be connected by a straight

line would indicate the trend of the market.

BAR CHART

In this chart the highest, lowest and closing price of each

day are plotted.

A bar is formed by joining the highest and the lowest price

of a particular day by a vertical line.

The top of the bar represent highest price of the day, the

bottom of the bar represent the lowest price of the

day.

A small horizontal hash on the right of the bar is used to

represent the closing price of the day

CHART TYPES – BAR CHART

Vertical line represents highs/lows of the day

Horizontal line represents closing price

Red = down

Blue/Black = up

Daily High

Daily Low

Closing Price

Price Gap

JAPANESE CANDLESTICK CHART

This chart shows the highest, lowest price, opening

price and closing price of shares on a day-to-day

basis.

The highest price and lowest price of a day are

joined by a vertical bar.

The opening and closing price of the day which

would fall between the highest and lowest prices

which is represented by a rectangle.

Three types of candlesticks,

White candle stick

Black candle stick and

Doji candlestick

CON..

A white candlestick is used to represent a situation

where the closing price of the day is higher than the

opening price.

A black candlestick represents the closing price of

the day is lower than the opening price.

A Doji candlestick is the one where the opening and

closing price of the day is same.

ELLIOT WAVE THEORY

The theory was formulated by Elliot after analyzing

seventy five years of stock price movements and

charts.

He concluded that the market movement was quite

orderly and followed a pattern of waves.

The waves are the result of buying and selling

impulses emerging from the demand and supply of

the market.

CONT..

According to this theory, the market moves in

waves.

A movement in a particular direction can be

represented by five distinct waves.

In this five waves three waves are in the direction of

movement and are termed as impulse waves.

Two waves are against the direction of movement

and are termed as corrective or reaction waves.