UNIT – IV TECHNICAL ANALYSIS

ORIGIN & HISTORY The technical analysis is based on the doctrine given by Charles H. Dow in 1904, in the Wall Street Journal.

ASSUMPTION It has observed that human nature remains more or less constant and tends to react to similar situations in consistent ways. Based on this premise, by studying the nature of previous market turning points, it is possible to develop some characteristics that can be help identify major market tops and bottoms.

MEANING The technical approach to investment is essentially a reflection of the idea that prices move in trends that are determined by the changing attitudes of investors towards a variety of economic, monetary, political and psychological forces

INGREDIENTS Technical analysis is based on the assumption that market price fluctuations reflect the logical and emotional forces prevailing in the secondary market Sentiment Flow of funds Market structure indicators

CHARTS Charts have the strength of condensing information into a pattern that is easy to understand and grasp rather than numbers or statements. Line Charts Bar Charts Point & Figure Chart Candle Stick Chart

Tenets of technical analysis Prices exhibit trends History repeat themselves

CAUTION Certain patterns might not necessarily be followed constantly by a specific market trend; they are the uncertain indicators, during which time the investor ought to depend on other forms of market analysis in addition to the charts. Observations of prices over a period of time have indicated certain unique patterns that lead to consistent future price movements.

REVERSAL AND CONTINUATION PATTERNS REVERSAL PATTERNS Head & Shoulders Inverse Head & Shoulders Triple Tops Triple Bottoms Double Tops Double Bottoms CONTINUATION PATTERNS Symmetrical Triangles Ascending Triangles Descending Triangles Flags Pennants Gaps

WEAKNESSES OF TECHNICAL ANALYSIS Analyst Bias Open to interpretation Timing the market