Capital Markets Course 6

VI. Technical Analysis The market price is forecasted based on past values Efficient market hypothesis The transactions volume and open position are included into the analysis Analysis based on the indicators study the economic factors which influence the market; technical analysis study the market price evolution Analysis based on the indicators indicates correct the evolution of the market price, but not the moment; the movement moment is forecasted by the technical analysis Analysis based on the indicators reflects the reason of the price movement; the technical analysis indicates the effect of the movement

VI. Technical Analysis Premises of technical approach: Market actions discounts everything Prices moves in trends Market participants act mostly irrational History repeats itself

VI. Technical Analysis Dow Theory Hypothesis: The average discount everything The market has three trends: - primary trend (major) - secondary trend - minor trend Major trend has three phases - accumulation phase - participation phase - distribution phase The indexes must confirm each other Volume must confirm the trend A trend is assumed to be in effect until it gives definite signals that it has reversed

Suource: Bodie, Z. , A. Kane, and A. J Suource: Bodie, Z., A. Kane, and A. J. Marcus (2007): Essentials of Investments, 6th edition, McGraw Hill International Edition

VI. Technical Analysis Trend’s elements: Support Resistance Trend line Fan lines Trend channel

VI. Technical Analysis Graphic Forms: Head and shoulders Reversed head and shoulders Triple top or triple bottom Round top or round bottom (saucer) Double top (M) Double bottom (W) Triangle

VI. Technical Analysis Charts

VI. Technical Analysis Indicators: Moving Average Moving Average Convergent Divergent RSI (Relative Strenght Index) On Balance Volum Momentum ROC (Rate of Change)

Bibliography Anghelache G. (2004), Piaţa de capital. Caracteristici. Evoluţii. Tranzacţii, Editura Economică, Bucureşti Bodie, Z., A. Kane, and A. J. Marcus (2007), Essentials of Investments, 6th edition, McGraw Hill International Edition Murphy, J. J. (1999), Technical Analysis of the Financial Markets: a comprehensive guide to trading methods and applications, New York Institute of Finance