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(Hons) IIIyearVIsem FundamentalsofInvestments Week2 DrKanuJain
(Hons) IIIyearVIsem FundamentalsofInvestments Week2 DrKanuJain
Hypothesis:- Dow Theory is based on the hypothesis that the stock market does
not perform on a random basis. Rather, it is guided by some specific trends.
• PRIMARY TREND:- primary movement or major trend may last from less than
a year to several years. It can be bullish or bearish.
• SECONDARY TREND:- primary movement or major trend may last from less
than a year to several years. It can be bullish or bearish.
• MINOR TREND:- day to day trend or movements in prices over few days. It is
of very short duration.
BASIC ASSUMPTIONS
• Market price determined by demand and supply
forces.
• Prices move in trend for long periods.
• Reversal or shift in price trends may occur.
• Charts and graphs can predict change in demand
and supply forces.
• Price patterns tends to repeat themselves.
CHARTING : THE BASIC TOOL
• Opening price
• High price
• Low price
• Closing price
BAR CHARTS
• This is a popular technique of showing the price
variation and volume on a particular day.
• The 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.
LINE CHART
• Line chart represents any variable over a set period of
time.
• The line is formed by connecting value of represented
variable over the time frame.
• Line charts do not provide visual information of the
trading range for the individual points such as the high,
low and opening prices and closing price.
• They depict any variable like volume of a security, index
number, price etc .
Example for Line chart
POINT AND FIGURE CHART
• The point and figure chart is not well known or used by the
average investor but it has had a long history of use
dating back to the first technical traders.
• This type of chart reflects price movements and is not as
concerned about time and volume in the formulation of the
points.
• In order to prepare this type of graph ,the analyst has to
decide as to what is a significant price change .
• It uses a chart with "X"s and "O"s for predicting financial
asset prices. The "X"s are used to indicate rising prices
and "O"s to indicate falling prices
Example for Point and Figure chart
CANDLESTICK CHART
• Similar to the bar chart, the candlestick also has a thin vertical
line showing the period's trading range.
• Candlesticks rely heavily on the use of colors to explain what
has happened during the trading period. There are two color
constructs for days up and one for days that the price falls.
• When the price of the stock is up and closes above the opening
trade, the candlestick will usually be white or clear. If the stock
has traded down for the period, then the candlestick will usually
be red or black.
• If the stock's price has closed above the previous day's close but
below the day's open, the candlestick will be black or filled with
the color that is used to indicate an up day.
Example for Candlestick chart
Example for Candlestick chart
200
date open high low close
198
22 march , 2016 196.8 198.25 194.5 197.5
196
23 march , 2016 196.9 197.6 195.3 196.6 194
24 march , 2016 196.6 196.6 196.6 196.6 192
70
60
Open
Axis Title
50
High
40 Low
Close
30
20
10
0
6/1/2015 7/1/2015 8/1/2015 9/1/2015 10/1/2015 11/1/2015 12/1/2015 1/1/2016
0
100
300
400
500
600
700
800
200
date
3/30/2016
3/24/2016
3/21/2016
3/16/2016
3/11/2016
3/8/2016
3/3/2016
2/29/2016
2/24/2016
2/19/2016
2/16/2016
2/10/2016
2/5/2016
2/2/2016
1/28/2016
1/25/2016
1/20/2016
1/14/2016
1/11/2016
1/6/2016
12/31/2015
12/28/2015
12/22/2015
12/17/2015
12/14/2015
12/9/2015
12/4/2015
12/1/2015
11/25/2015
11/20/2015
11/17/2015
11/12/2015
11/9/2015
11/4/2015
10/30/2015
Amazon stock price chart
10/27/2015
10/22/2015
10/19/2015
10/14/2015
10/9/2015
10/6/2015
10/1/2015
TRIANGLES
• A triangle is formed when each succeeding peak is
lower than the previous peak
• Or each succeeding bottom is higher than the previous
bottom
• The series of peaks and bottoms are joined by a line
which converges and form a shape of triangle.
SYMMETRIC TRIANGLE
ASCENDING TRIANGLES:
(BULLISH)
DESCENDING TRIANGLE:
(BEARISH)
FLAGS
• A flag pattern appears when a bully rally or a bear
phase is interrupted by a consolidation pattern
appearing as a rectangle or a parallelogram.
• As the flag formation indicates a pause before
continuation of earlier trend, the prices move in the
same direction after the flag as before.
PARALLELOGRAM FLAG
INDICATOR ANALYSIS
• It’s a mathematical examination of price and
volume information over a given period.
• Objective: To predict where and in which direction
the price may move in near future
• Attempts to establish a mathematical relationship
of current price past prices.
MOVING AVERAGES
• It refers to average level of closing prices,
calculated on regular basis.
• A sequence of averages is calculated by
calculating averages on daily basis.
RELATIVE STRENGTH INDEX