Ce diaporama a bien été signalé.
Nous utilisons votre profil LinkedIn et vos données d’activité pour vous proposer des publicités personnalisées et pertinentes. Vous pouvez changer vos préférences de publicités à tout moment.
Technical	Analysis:	Basics	
	
Technical	Analysis	Meaning:	
	
Technical	Analysis	is	a	means	of	examining	and	predicting	pri...
though	the	high	price.	Likewise,	when	prices	move	down,	participants	want	
to	 sell	 irrespective	 of	 lesser	 prices.	 Th...
because	it	has	to	be	compared	with	the	opening	price.	If	the	close	price	is	higher	
than	the	open	price	it	is	a	positive	d...
Top-down	 Approach:	It	is	a	macro	economic	analysis	to	look	at	the	economy	in	
general	before	focusing	on	individual	secur...
Step2:	Identify	tradable	securities	that	fit	with	the	technical	strategy	
Strategy	mentioned	above	is	ideal	for	highly	liq...
Advantages	of	Technical	Analysis:	
	
1. Helps	to	identify	the	signals	for	price	trends	in	the	market.	
2. It	works	out	a	m...
Prochain SlideShare
Chargement dans…5
×

Technical Analysis basics P. SAI PRATHYUSHA ( PONDICHERRY UNIVERSITY) 1ST M.COM BUSINESS FINANCE

TECHNICAL ANALYSIS # MEANING # EXPECTATIONS FROM TECHNICAL ANALYSIS # VARIOUS APPROACHES # ADVANTAGES OF TECHNICAL ANALYSIS # DESCRIPTION # CHARACTERISTICS

  • Soyez le premier à commenter

  • Soyez le premier à aimer ceci

Technical Analysis basics P. SAI PRATHYUSHA ( PONDICHERRY UNIVERSITY) 1ST M.COM BUSINESS FINANCE

  1. 1. Technical Analysis: Basics Technical Analysis Meaning: Technical Analysis is a means of examining and predicting price movements in the financial markets, by using historical price charts and market statistics. Technical Analysis is a research technique to identify trading opportunities in the market based on the action of market participants. Charts and its patterns over the time will exhibit the actions of market with particular message. It is based on the idea that if a trader can identify previous market patterns, prediction of future price may be formed. Technical analyst employs many methods, tools and techniques; one of the popular tools is a chart. Through charts price patterns and market trends are identified. Technical Analyst helps us to identify patterns and develop a point of view on the actions of the market under certain assumptions listed below. 1. Market discounts everything: Stock prices quoted in the market are getting adjusted to known and unknown information in the public domain. For example: when finance minister presents budget in Indian parliament the prices of stocks of a particular industry keeps dangling based on the presentation made by the finance minister. Another example assume that there is an insider who knows some information about inside details of company buys large number of stocks secretly, the prices of these stocks reacts. 2. The ‘how’ is more important than ‘why’: Technical analysis or analyst would be trying to find reasons for changes in the prices of stock in the market. For example; consider the example given above. Technical analyst would not be interested to find out why the insider bought the stock instead he would be interested to know how the prices reacted to the insider’s action. 3. Price moves in trend: It is believed that the prices trend directionally like up, down or sideways. Trend is the fundamental aspects of technical analysis and it is assumed that all major moves in the market is an outcome of a trend. Once the trend is established, the price moves in the direction of the trend. For example the upward or downward movement in the indices from one level to another level does not happen overnight rather it happens in a phased manner over a period of time. Dow through Dow theory originally propounded the basic definition of a price trend. 4. History tends to repeat itself: It is believed that investors collectively repeat the behavior of the investors who preceded them and expected or assumed that the market participants reacts to price movements in a similar way, each and every time the price moves in a certain direction. This is what called in technical analysis the price trend tends to repeat itself. For example; when market has upward trend, participants get greedy and want to buy
  2. 2. though the high price. Likewise, when prices move down, participants want to sell irrespective of lesser prices. This human reaction ensures that the price history repeats itself. Expectations from Technical Analysis: 1. Trades: Technical Analysis is not to be used for identifying long term investment opportunities instead it is to be used for identifying short-term trades. Fundamental analysis is better for long-term investment opportunities. Fundamental analyst can use technical analysis to calibrate the entry and exit points. 2. Return per trade: Technical analysis would help to identify short term trading opportunities, which can give small but consistent profits. Larger return is not possible within a short duration of holding investment. Technical analysis is based on trades usually short term in nature. 3. Holding Period: Technical analysis will help for the trade, which can last for few weeks. 4. Risk: Generally participants in the market would initiate a trade for some reasons; but when there is an adverse movement the trade would give loss. Whereas trader would hold on to their loss-making trade with the hope to recover the loss. But technical analysis based trades are short term, when prices are not favorable; it would cut the losses and move on to identify another opportunity. Need for Market Summary: Indian Stock Market is open from 09.15am to 15.30pm for a total period of 6 hour 15 minutes every working day; which would account for millions of trades. Every minute there is a trade gets executed for every stocks listed in the stock exchange. Therefore the question is as a market participant should we keep track of all the different price point at which it is traded. It is practically not possible to have charts with every trading points executed at a particular time; even it is graphed it will be of no use as the graph will be cluttered with many points and therefore, there is a need for a summary of the trading and not the details of all different price points. This summary is possible by tracking the open, high, low and close price actions in the market. The Open Price: It is the first price at which the markets open for traded and executed. The High Price: It is the highest price at which a market participant is willing to transact on the given day. The Low Price: It is the lowest price at which a market participant is willing to transact on the given day. The Close Price: It is the final price at which the market closed for a particular day. The close price indicates the strength of intra day and which is most important price
  3. 3. because it has to be compared with the opening price. If the close price is higher than the open price it is a positive day, otherwise it will be a negative day. This close price would be show the market sentiment and reference point for the next day’s trading. All these prices like open, high, low and close are the main data from the technical analysis point of view. Each price would be plotted on the chart and analysed individually to arrive at the investment decision. Description and Characteristics: Technical analyst using charts study technical indicators, moving averages and look for forms. Through charts they search for archetypal price chart patterns like head and shoulders or double top/bottom reversal pattern and forms like line of support, resistance, channels and more formations like flags, pennants, balance days and cup and handle patterns. They also widely use market indicators; some of which are mathematical transformation of price; these indicators are used to help assess whether an asset is trending and if it is trending to determine the probability of its direction and of continuation. Technical analyst also looks for relationship between price and volume indices and market indicators like moving average, relative strength index, and MACD. They also study correlations between changes in Options and put/call ratios with price. Technical analysis has many techniques like Candlestick analysis; using one technique would automatically ignore the salient features of other techniques and therefore, many technicians combine elements from more than one technique. Some others use subjective judgment to decide which pattern a particular instrument reflects at a given time and other employ a mechanical or systematic approach to pattern identification and interpretations. Through recognition of chart patterns the technicians employs models and trading rules based on price and volume transformations like Relative Strength Index, Moving Averages, regressions, inter-market and intra-market price correlation, business cycles, stock market cycles etc. The fundamental principle is that the market’s price reflects all relevant information impacting that market and therefore, technicians look at the history of a security trading pattern rather than external factors like economic, fundamental and news events. Right Approach: We have already seen in the previous sections that there are two types of investors based on the period of their investment namely: short term and long-term investor. Investors who are parking their money for the short duration is called as short term investor and who keep them for long duration may be beyond twelve months is called as long term investor. Short term investor would be adopting top-down approach whereas long term investor would use bottom-up approach.
  4. 4. Top-down Approach: It is a macro economic analysis to look at the economy in general before focusing on individual securities. First an investor would focus and analyze the economy and it is present day conditions to see whether economy is down sliding or moving up to identify the policy and support of government. Then investors would identify the sectors, which are favorable for investment in the given economic conditions, and finally investor would analyze the company in particular for buying stock. The principle aim is to have short-term gains not on the long term valuations. For example; in the present day situation economy is sliding or not growing by looking at the Gross Domestic Production (GDP); reasons for such situation is very much evident that is due to Corona virus global economy is affected and its impact is seen in Indian economy. Many sectors like travel industry, hotel and hospitality industry, manufacturing firms are very badly affected. In this juncture investor needs to identify the company for his or her investment. Bottom up Approach: Under this approach, the investor would focus on individual stocks instead of analyzing macroeconomic factors in the first instance. Here analyses would help to identify the stock that appears fundamentally interesting for potential entry and exit points. For example: an investor through analysis find an under valued stock in the downtrend and determine the entry point through technical analysis with an intension of holding them for long term view on their trades. Different types of traders prefer to use different forms of technical analysis for example; day traders would be using simple trend lines and volume indicators, whereas swing or position traders use chart patterns and technical indicators. Some other traders who are using automated algorithms may have different requirements for the use of combination of volume indicators and technical indicators. Steps for technical analysis: Step1: Identify a technical analysis strategy or develop a trading system. The investor is expected to identify as a first step a strategy or develop a trading system. For example; first time investor may take a strategy to follow a moving average crossover on a particular stock price movement. Consider 50d ay and 200 day moving averages, if the short term 50 day moving average goes above the long term 200 day moving average, then the investor would be buying the stock as it shows an upward price trend and generated buy signal. The opposite of this true for sell signal.
  5. 5. Step2: Identify tradable securities that fit with the technical strategy Strategy mentioned above is ideal for highly liquid and volatile stocks not for illiquid or stable stocks. Different stocks or contracts require different parameter choices. For the above strategy different moving averages like a 15 day and 50 day moving average would be the ideal ones. Step3: Find the right brokerage account for executing the trades Determine the correct trading account that will support the selected security like common stock, penny stock, futures, options etc. The stock selected should be of capable for tracking and monitoring by keeping costs low to avoid eating into profits. For the above strategy, a basic account with moving averages on candlestick charts would work. Step4: Select an interface to track and monitor trades Different levels of functionality are required for traders depending upon their strategy. Day trader requires a margin account that would provide access to quotes and market maker visibility. For the above strategy, a basic account is preferred Step5: Identify any other applications that may be needed to implement the strategy: In order to maximize performances other features are needed. Some traders may need mobile alerts or access to trading while others may be interested to take advantage of automated trading system.
  6. 6. Advantages of Technical Analysis: 1. Helps to identify the signals for price trends in the market. 2. It works out a methodology for locating the best entry and exit points in the market. 3. Technical analysis has created self-fulfilling trading rules. 4. More buyers and sellers are congregating through the use of same indicators for finding support and resistance levels. 5. The quantum of data required for technical analysis is less than what is required for fundamental analysis. 6. It is easier to time the entries and exits for trade using technical analysis as it focuses on new trends and trend reversals. 7. Technical Analysis provides early signals and paints a picture about the psychology of investors and traders regarding what they are doing. 8. It is quick and less expensive. It provides quick result for traders who use 1minute, 5 minutes, 30 minutes and 1 hour charts. 9. Technical Analysis provides lots of information and helpful for short term trading, swing trading and long term investing. Charts provide a lot of information that helps the traders and investors to build their positions and take trades. Disadvantages of Technical Analysis: 1. There is a possibility for unpredictable market behavior. 2. No definitive guarantee for any analysis like fundamental or technical analysis, which will be accurate. 3. Historical price patterns give us an insight into an asset’s price trajectory but no promise of success. 4. Traders should use a range of indicators and analysis tools to get the highest level of assurance possible. 5. Always there is a need for risk management strategy in place to protect against adverse movements. 6. Possibility to get mixed signals and two different indicators will provide contradictory information. This will cause confusion in trading decisions. 7. Technical analysis do not do well with explosive trends and highly volatile and illiquid markets and securities.

×