CHAPTER 1

INTRODUCTION TO
TECHNICAL ANALYSIS
Learning This topic covers the basic knowledge of the

Outcomes concept of technical analysis and its application.

To learn the basic knowledge andconcepts of

technical analysis.

To identify the application of technicalanalysis

related to the theory.
Content 1.1 The definition and interaction of trends

1.2 Dow Theory and Random Walk Theory

1.3 Efficient Market Hypothesis (EMH))

1.4 Typical parameters for intermediate trends

 Introduction
Technical analysis was defined as the art
of identifying trend changes at an early
stage and maintaining an investment or
trading posture until the weight of the
evidence indicates that the trend has
reversed.
.
 Technical Analysis Fundamental Analysis

Objectives Objectives
Predict short-time price movements. Valuing the firm's stock.

Tools Tools
Charts, price, volume, significant Historical data from financial
events statement and past events
 Technical Analysis Fundamental Analysis

Types of investors Types of investors

Short-term traders Long-term traders

Strategy Strategy
Identify the current trends in price Identify underpriced or overpriced
movements stocks
 Market action
Philosophies 1 discounts everything

Price moves
2 in trend

3 History repeats
itself
Advantages of Technical Analysis
 Timing

Applicable to different
time dimensions

Flexibility and adaptability

Can the past be used
to predict the future?
 Time
Frames
The principles of technical analysis can
be applied to any time frame, from one-
minute bars to weekly and monthly
charts.

IMPORTANT TRENDS
 Major
Technical
Principle

Generally, the longer the

time span of a trend, the
easier it is to identify.
The shorter the time
span, the more random it
is likely to be.
 THE MARKET CYCLE MODEL
Long-term investors are principally concerned with the
direction of the primary trend, and, thus, it is important for
them to have some perspective on the maturity of the
prevailing bull or bear market.
However, long-term investors must
also be aware of intermediate and, to
a lesser extent, short-term trends.
Short-term traders are principally
concerned with smaller movements in
price, but they also need to know the
direction of the intermediate and
primary trends.
PEAK-AND-TROUGH PROGRESSION

PEAK

It consists of a series of scientifically derived indicators or

TROUGH techniques that work well most of the time in the trend-
identification process. The “art” consists of combining
these indicators into an overall picture and recognizing
when that picture resembles a market peak or trough.
 Prices never move in a
straight line, it always
moves up and down.

When the series of rising

peaks and troughs is
interrupted, a trend
reversal is signalled.
Remember the
basic concept of
technical analysis?
Do you have any
questions?
See you in
next class...