TECHNICAL ANALYSIS

Umm-e-Laila S/2019-1607
Nida Ellahi S/2019-1615
Kainat Munawar S/2019-1627
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Meaning
• Study of market generated data like price and volume
to determine the future direction of price movement.
• A study of past or historical price and volume movement so as
to predict the future stocks price behavior.
• Forecasting techniques that utilize historical share price data.

• Technical analysts believe that past patterns of market action

will recur in the future and that past patterns can be used for
predictive purposes.
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 BASIC PRINCIPLES OF TECHNICAL
ANALYSIS

 Market prices are determined by the interactions of supply and demand

forces.
 Shift in demand & supply bring about changes in trends.

 Shift in demand & supply detected with the help of charts of market
action.
 Analysis of past market data can be used to predict the future price
behavior.
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• Charles .H. Dow
• Popularly known as Theory of Technical
analysis

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 According to Charles .H. Dow
The market is always considered as having three movements,
all going at the same time:
• The first is the narrow movement from day to day.
• The second is the short swing, running from two weeks to a
month or more.
• The third is the main movement covering at least four years
in its duration.

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• The Dow theory is used to indicate reversals and trends in the
market as a whole or in individual securities.

• According to the theory, there are three movements going on

in the markets at all times:
1. Daily fluctuations:
(the narrow movement from day-to-day)
2. Secondary movements:
(short-run movements over two weeks to a month or
more)
3. Primary trends, major movements:
covering at least four years in duration
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• Dow formulated a hypothesis is that the stock market does not
move on a random basis but is influenced by three distinctive
cyclical trends that guides its direction.

1) Primary / main movements

2) Secondary reaction / correction movement

3) Minor / narrow movements

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* Primary or main movements /trend
• Long range cycle that carries the entire market up or down long term
trend in the market.

* Secondary reaction or correction movement/trend

• These are the opposite direction to the primary movements
• Only for a short period
Eg:- when the market is moving upward continuously, this upward movement
will be interrupted by downward movement of short duration.

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 Minor or Narrow movements/trend

• Day to day fluctuations in the market

• Not significant & have no analytical value
• Very short duration

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• Trend is the direction of movement.
• Share price can either increase, decrease or
remain in flat.
• The three directions :

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1. Rising/up trend

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2. Falling/down trend

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3. Flat trend

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Trend Reversal
•Technical analyst tries to identify the trend
reversal at an early stage so as to trade
profitably:
• When the trend begins to rise the
technical analyst would recommend
purchase of the shares.
• When the trend begins to fall, sale is
indicated.
• During a flat trend the investor
• should stay away from the market.

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 Bar Chart 

Line Chart  
TYPES OF
CHARTS
Candle Stick Charting  

Point and Figure Chart

THE BAR
CHART
Some of the most
popular type of charts.
Advantage is that it
show the high, low, open
and close for each day.
 LINE
CHART
CANDLE
STICK
CHARTI
NG
CANDLE
STICK
CHARTING
• Green is an example of a
bullish pattern, the stock
opened at (or near) its low
and closed near its high
• Red is an example of a bearish
pattern. The stock opened at
(or near) its high and dropped
substantially to close near its
low
 Somewhat rare.  

Plots day-to-day increases and declines in price. 

POINT A rising stack of XXXX’s represents increases.  

AND
FIGURE A rising stack of OOOO’s represents decreases.  

CHART Typically used for intraday charting.  

If used for multi-day study, only closing prices will be

used.
POINT
AND
FIGURE
CHART
POINT AND • Helps to filter out less-significant price
movements allowing analyst to focus on
FIGURE most important trends.
• Used to keep track of emerging price
CHART patterns.
• No time dimension.  
•  Two attributes affecting the appearance of
a point & figure chart  
 Box size
 Reversal amount
 There are, literally, hundreds of technical indicators used to
generate buy and sell signals.

TECHNICAL We will look at just a few that I use:

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INDICATORS •
On balance volume
Bollinger bands
• Relative strength index (RSI)
ON BALANCE VOLUME
On balance volume was developed by Joseph Granville one of the most
famous technicians of the 1960 and 1970.
OBV is calculated by adding volume on up days and subtracting
volume on down days.
Granville believe that “volume leads price.”
To use OBV you generally look for OBV to show a change in trend.
If the stock is in uptrend, but OBV turns down, that is a signal that the
price trend may soon reverse.
 Bollinger bands was created by John
Bollinger.
Bollinger bands are based on a moving
average of the closing price.
They are two standard deviation above or
BOLLINGER below the moving average.
BANDS A buy signal is given when the stock price
closes below the lower band, and a sell a
signal is given when the stock price closes
above the upper band.
In my experience, the buy signals are far more
reliable than the sell signals .
REALATIVE STRENAGHT INDEX
The relative strength index (RSI) is a momentum indicator used in
technical analysis that measures the magnitude of recent price changes
to evaluate overbought or oversold conditions in the price of a stock or
other asset.
A comparison between the days a stock finished up against the days it
finished down.
TECHNICAL INDICATORS
Technicians also like to examine the overall situation by analyzing such
factors as breadth and market sentiment indicators.
Breadth Indicators 
Advance/decline data is called the breadth of the stock price.
Breadth indicators are mathematical formulas that measure the number
of advancing and declining stocks, and/or their volume, to calculate the
participation in a stock index's price movements.
Conti.
Advance Decline line
A technical analysis measure the relates the number of stocks rising to
.the number of declining
New highs and lows
.Part of the information reported for the New York Stock Exchange
.And other stocks is the 52 week high and low prices for each stock
SENTIMENT INDICATORS
A sentiment indicator is designed to represent how a group feels about the
market or economy . These market psychology -based indicators attempts
to quantify sentiment, in the form of figures or graphically, to predict how
.current beliefs and positions may affect future market behavior
Short interest ratio
.The total number of shares in the market sold short and yet repurchase
Call ratio
Speculators buy calls when they accept stock prices to rise, and they buy
.puts when they except prices to fall
Conti.
Mutual Fund liquidity
Mutual fund liquidity, which uses the potential buying power of mutual
.funds as a bullish or bearish indicators
Testing Technical Analysis
:The adjustments that should be made include at least the following
Risk
Transaction and other costs
Consistency
RESISTANCE AND SUPPORT
.Prices levels at which the movement should stop and reverse direction
Act as floor and celling
Different strengths (major and minor)
Support
Price level below the current market price at which buying interest should be able
.to overcome selling pressure and thus keep the price from going any lower
Resistance
Price level above the current market price at which selling pressure should be
strong enough to overcome buying pressure and thus keep the price from going
.any higher
 Resembles an M in which a stock price
Rise to a peak and then declines
Rises above the former peak and again declines
HEAD AND Rises again but not the second peak and again declines
SHOULDER The first and third peaks are shoulders, and the second peak
.forms the head
Very bearish indicator
 Technical analysis is a particular approach to investing that
.will appeal to some invertors and not to others
Whereas most investors concentrate on the fundamentals of
a company, technical analysis are concerned with the share
.price itself
They believe that prices are driven by the psychology of
CONCLUSION . investors rather than fundamentals
By understanding investor psychology, they can predict
.which way prices will move