Presentation on Technical Analysis By:-Rimple M Patel Roll No:-36 Submitted To:-Prof.Rutvi Umrigar

What is Technical Analysis:?  Forecasting of future financial price movements based on an examination of past price movements  Like weather forecasting, does not provide an absolute prediction  TA Offers a glimpse at where prices are most likely to go in the future

Contd…  It is a process of identifying trend reversals at an earlier stage to formulate the buying and selling strategy. With the help of several indicators they analyze the relationship between price volume and supply demand for the overall market and individual stock.  Technical analysis is the attempt to forecast stock prices on the basis of market-derived data.  Technicians (also known as quantitative analysts or chartists) usually look at price, volume and psychological indicators over time.  They are looking for trends and patterns in the data that indicate future price movements.

Assumptions of technical analysis  The market value of the script is determined by the interaction of supply and demand.  The market discounts everything.  The market always moves in trend. Except for minor deviations, the stock prices move in trends.  The fact that history repeats it self it is true to the stock market also.

Basic Technical Tools  Dow Theory  Trend Lines  Moving Averages  Bars and line charts  Oscillators  Short selling  Odd lot trading  Price Patterns  Indicators  Cycles

Dow theory:  Charles Dow known as the “Godfather of TA”  Dow Theory pieced together from the writings of Charles Dow over several years.The technical analysis is based on the doctrine given by him in 1984,in the Wall Street Journal.

Contd Dow developed his theory to explain the movement of the indices of Dow Jones averages. He developed the theory on the basis of certain hypotheses.The following are hypothesis: 1.No single individual or buyer can influence the major trend of the market. An individual investor can affect the daily price movement by buying or selling huge quantum of particular scrip. 2.The market discount everything.Even natural calamities such as earth quake,plague also get quickly discounted in the market. 3.Third hypothesis is that the theory is not infallible.It is not a tool to beat the market but provide a way to understand it better

According to Dow Theory the trend is divided into primary,intermediate and short term trend. Trend:- Trend is the direction of movement.The share Prices can either increase or fall or remain flat.The three direction of the share price are called as rising,falling and flat trends.

Trend Lines  There are three basic kinds of trends: An Up trend where prices are generally increasing. A Down trend where prices are generally decreasing. A Trading Range/Flat trend line 1 2 3

Trend Reversal  The rise or fall in share price cannot go on forever.The share price movements may reverse the direction.Before the change of direction,certain pattern in price movement emerges.The change in the diection of trend is shown by violation of the trend line.If the scrip price cuts the rising trend line from above,it is violation of the trend line and signals the possibility of fall in price and vice-a-versa.

Types of trend:- 1.Primary Trend: The primary trend may be either increasing or decreasing movement in price.It is called as “the tide” by Dow, this is the trend that defines the long-term direction (up to several years). Others have called this a “secular” bull or bear market.  Types of Primary Trend: 1.Bull market when the market exhibits the increasing trend,it is called bull market.The bull market shows 3 clear- cut peaks. Each peak is higher than the previous peak.The bottoms are also higher than the previous bottoms.The phases leading to the 3 peaks are: a.Revival Phase: -encourage more and more investors to buy scripts.

b.Good corporate Earnings: -increase profit of corporate result in further price rise c.Speculation Phase: -price advance due to inflation and speculation. Revival phase Good corporate earnings phase Speculation phase BULL MARKET PricePrice Days

2.Bear Market:- The reverse is true with the bear market.Here the tops and bottoms are lower than the previous one.the phases leading to the fall are: 1.Fall starts with abondment of hopes. -The chances of prices moving back to the previous high level seemed to be low. 2.Companies are reporting lower profits and dividends. -This would lead to selling pressure. 3.Distress sale of shares:

Loss of hope Recession in business Distress selling days priceprice Bear Market

2.Secondary Trend:-  It is called as “the waves” by Dow, this is shorter-term departures from the primary trend (3 weeks to 3 months)  The secondary trend or the the intermediate trend moves against the main trend and leads to correction.In the bull market the secondary trend would result in the fall of about 33-66% of the earlier rise.In the bear market,the secondary market carries the price upward and corrects the main trend.  The correction would be 33-66% of the earlier fall.Intermediate trend corrects the overbought and oversold condition.It provides the bresthing space to the market.

Secondary Trend movement 33 to 66 % of A 33 to 66% of B A B Secondary Correction priceprice days

Support & Resistance level A support level exits at a price where considerable demand for that stock is expected to prevent further fall in the price level. the fall in the price may be halted for the time being or it may result even in price reversal.In the support level,demand for the particular scrip is expected. The resistance level, the supply of scrip would be greater than the demand and further rise in price is prevented. the selling pressure is greater and the increase in price is halted for the time being. Support and resistance level usually occurs whenever the turnover of a large number of shares tend to be concentrated at certain price levels.When the stock touches the certain level and then drops,this is called resistance and if the stock reaches down to a certain level and then rises there exists support.The level constantly switch from one to another.

Support Level Resistance Level days priceprice Support level Resistance level

 Example:- If a scrip price is around Rs.150 for some weeks,then it may rise and reach Rs.210.At this point the price halts and then falls back.The scrip keeps on falling back to around its original price Rs.150 and halts.Then it moves upward.In this case Rs.150 is becomes the support level.At this point,the scrip is cheap and investors buy it and demand makes the price move upward.Whereas Rs.210 becomes the resistance level,the price is high and there would be selling pressure resulting in the decline of the price.