Presentation on

Technical Analysis

By:-
Raunak upadhyay (Mba/100/18)
Manas maheshwawari (mba/10094/18)
 TECHNICAL ANALYSIS
• Process of identifying trend reversals at an early stage to formulate buying and selling strategy.
• Analyze the relationship between Price – volume and supply – demand for overall market and
individual stock.
• Technical analysts believe past trading activity and price changes of a security can be valuable
indicators of the security's future price movements.
• It helps to identify trading opportunities in price trends and patterns seen on charts.
 Assumptions
 The market value of scrip is determined by the interaction of supply and
demand.
 The market discounts everything. The price of security quoted represents the
hopes, fears and inside info. received by the market players regarding issue of
bonds or shares and right issues may support the prices. These factors may
cause change in demand and supplies, changing the direction of trend.
 The market always moves in trend except for minor deviations. The prices
may create definite patterns too. The trend may be increasing or decreasing.
The trend continues for sometime and reverses again.
 A layman also knows a fact that “history repeats itself”. It is same in the stock
market also ,in the rising market investors psychologically have up beats and
they purchase the share in grater volume, driving the prices higher same
time in the down trend they may be very eager to get out of the market by
selling them and thus plunging the share prices further. The market
technicians assume that the past prices predict the future.
 Technical Tools
• Dow Theory
• Volume of trading.
• Short selling
• Odd lot trading
• Charts
• Moving Average
• Socillators
 Charts
• The Graphic presentation of the data helps the investors to find out
the trend of the PRICE and Trading volume.
• Determine the probable strength of demand versus pressure of
supply at various price level.
• Predict in which direction stock will move.
 Types of Charts
• Line Chart
• Bar Chart
• Point and Figure Chart
• Candlestick Chart
Line Chart
• The most basic of the charts is the line
chart. It represents only the closing prices
over a set period of time.
• The line is formed by connecting the
closing prices over the time frame.
• The closing price is often considered to be
the most important price in stock data
compared to the high and low for the day
and this is why it is the only value used in
line charts.
 Bar Chart
• The bar chart is made up of a series of
vertical lines that represent each data
point.
• This vertical line represents the high and
low for the trading period, along with the
closing price.
• The close and open are represented on
the vertical line by a horizontal dash. The
opening price on a bar chart is illustrated
by the dash that is located on the left side
of the vertical bar.
• The close is represented by the dash on
the right
 Point and Figure Chart
• Point & Figure charts are independent of
time.
• An X represents an up move.
• An O represents a down move.
• The Box Size is the number of points needed
to make an X or O.
• The Reversal is the price X change needed to
recognize a change in direction.
• Typically, P&F charts use a 1-point box and a
3-point reversal.
 Candlestick Chart
• Candlestick chart, contains open, high, low and
close values for each time period you want to
display.
• The hollow or filled portion of the candlestick is
called "the body" (also referred to as "the real
body").
• The long thin lines above and below the body
represent the high/low range and are called
"shadows" (also referred to as "wicks" and
"tails").
• The high is marked by the top of the upper
shadow and the low by the bottom of the lower
shadow.
• If the stock closes higher than its opening price,
a hollow candlestick is drawn with the bottom of
the body representing the opening price and the
top of the body representing the closing price.
• If the stock closes lower than its opening price, a
filled candlestick is drawn with the top of the
body
Chart Patterns
• V Formation
Sharp decline and fast reversal.
Occurs mostly in popular stocks
where the market interest changes
quickly from hope to fear.
Case of Inverted ‘V’, First the rise
occurs and then the Decline.
Double Top and Bottom
Double Top Double Bottom
• Formed when stock price rises to certain level, • Former when stock price fall to certain level, then
falls rapidly & rise again to the same level or increase with diminishing activity and fall again to
more, turns down. same level & rise again.
• Resembles the letter ‘M’. • Resembles the letter ‘W’.
• The double top indicate onset of the Bear • The double bottom indicate sign as Bull Market.
market.
Head and Shoulder
• Three rallies resembling the left shoulder, a head
and a right shoulder.
• A neckline drawn connecting the lows of the tops.
• Price cuts neckline from above signals Bear
market.
Inverted Head and shoulder
• Reverse of head and shoulder pattern.
• Price of stock falls and rises , which makes an
inverted right shoulder, head and left shoulder.
• Connecting the tops of the inverted head and
shoulder gives the neckline.
• Price pierces the neckline from below, it indicates
end of Bear Market and beginning of Bull Market.
 Moving Average
• A simple moving average is calculated by taking average of most recent closing prices of n time period.
• Exponential Moving average applies weighting factors which decrease exponentially
• Markets do not rise in a straight line. The underlying trend in the market can be studied by smoothening the
data. This is done by using moving averages.
• The word moving means that the body of data moves ahead to include the recent observation.
• The moving average indicates the underlying trend in the scrip.
• They also form the building blocks for many other technical indicators and overlays, such as Bollinger Bands,
MACD etc.
• For identifying short-term trend, 10 to 30 days moving averages are used.
• In the case of medium-term trend 50 to 125 days are adopted.
• To identify long-term trend 200 days moving average is used.
• The two most popular types of moving averages are the Simple Moving Average (SMA) and the Exponential
Moving Average (EMA)
 Simple Moving Average
• A simple moving average is formed by computing the average price of
a security over a specific number of periods. Most moving averages
are based on closing prices. A 5-day simple moving average is the five
day sum of closing prices divided by five.
• Old data is dropped as new data becomes available. This causes the
average to move along the time scale
 Exponential moving average
• Exponential moving average is a weighted moving average. Recent
prices are given more weights than the older prices. The weighting
applied to the most recent price depends on the number of periods in
the moving average.
• Exponential Moving Average Calculation
• Exponent: E= (2 / (n + 1) ) where n is period.
• For n=10, E= (2 / (10 + 1) ) = 0.1818
• EMA: {Close - EMA(previous day)} x Exponent + EMA(previous day).