TECHNICAL ANALYSIS

MEANING OF TECHNICAL ANALYSIS  Technical analysis is a security

analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume

A fundamental principle of technical analysis is that a market's price reflects all relevant information, so their analysis looks at the history of a security's trading pattern rather than external drivers such as economic, fundamental and news events. Therefore, price action tends to repeat itself due to investors collectively tending toward patterned behavior – hence technical analysis focuses on identifiable trends and conditions

DOW THEORY Chapels Dow formulated a hypothesis that

the stock market does not move on a random basis but is influenced by three distant cyclical trends that guide its direction

According to Dow’s theory, the market has three movement and this movement are simultaneous in nature .this movement are primary movement ,secondary movement ,and minor movement

PRIMARY TREND

The primary movement is the long range cycle that carries the entire market up or down .this is a long run trend in market

In Dow theory, the primary trend is the major trend of the market, which makes it the most important one to determine. The primary trend will also impact the secondary and minor trends within the market

SECONDARY TREND A secondary trend moves in the opposite direction of the

primary trend, or as a correction to the primary trend. For example, an upward primary trend will be composed of secondary downward trends

This is the movement from a consecutively higher high to a consecutively lower high. In a primary downward trend the secondary trend will be an upward move, or a rally.

This is the movement from a consecutively lower low to a consecutively higher low

MINOR TREND The last of the three trend types in Dow theory is the minor trend,

which is defined as a market movement lasting less than three weeksThe minor trend is generally the corrective moves within a secondary move, or those moves that go against the direction of the secondary trend.

Due to its short-term nature and the longer-term focus of Dow theory, the minor trend is not of major concern to Dow theory followers. But this doesn't mean it is completely irrelevant; the minor trend is watched with the large picture in mind, as these short-term price movements are a part of both the primary and secondary trends

BASIC PRINCIPLES OF TECHNICAL ANALYSIS The market value of a security is related to demand and

supply factors operating in the market Security price behave in manner that their movement is

continuous in a particular direction for some length of time

Trend in stock price have been seen to change when there is a shift in the demand and supply factor

The shift in demand and supply can be detected through charts prepared specially to show market action

And these charts are used by analysts to make forecasts about the movement of price in future .

PRICE CHARTThree type of price chart are currently used by technical analysts LINE CHART BAR CHART CANDLESTICK CHART

LINE CHART

BAR CHART

CANDLESTICK CHART

Trends

The meaning of trend in finance isn't all that different from the general definition of the term - a trend is really nothing more than the general direction.

A trend represents a consistent change in prices (i.e. a change in investor’s expectations)

A trend line is a simple charting technique that adds a line to a chart to represent the trend in the market or a stock

Types of Trend

RISING TREND

FALLING TREND

CHART PATTERN

Support and Resistance

Support level is a price level where the price tends to find support as it is going down

Support and Resistance

Resistance Level is a price level where the price tends to find resistance as it is going up

Reversal Patterns

Reversal Patterns Head and Shoulders, Rounding tops and

bottoms, Triangles, Rectangles, Double and triple tops and bottoms, diamonds, wedges etc

Continuation Patterns Pennants and flags etc

Head and Shoulders

Triangles

Flags and Pennants

ELLIOTT WAVE THEORY The Elliott Wave Principle is a form of technical analysis that traders

use to analyze financial market cycles and forecast market trends by identifying extremes in investor psychology, highs and lows in prices, and other collective factors.

MATHEMATICALINDICATORSAverages SIMPLE MOVING AVERAGE The simple moving average is an arithmetic mean of price data. It is calculated by summing up each interval's price and dividing the sum by the number of intervals covered by the moving average. For instance, adding the closing prices of an instrument for the most recent 25 days and then dividing it by 25 will get you the 25 day moving average.

Exponential Moving Average Exponential Percentage = 2 ---------------------------- Time Periods(n) + 1

Ex: for 3 day EMA,

E % = 2/(3 + 1) E % = 2/4 = 0.5

OSCILLATORS Oscillators are mathematical indicators with the help of the closing

price data. They help to identify overbought and oversold conditions and also the possibility of trend reversals. These indicators are called oscillators because they move across a reference point

RATE OF CHANGE INDICATOR Measures rate of change of the current price as compared to the price a certain number of days or week back ROC = CURRENT PRICE ------------------------ 1 PRICE n period ago

RELATIVE STRENGTH INDEX (RSI) This is a powerful indicators that signals buying and selling opportunites ahead of the market.

RSI =100 –[100/(1+RS)]WERE

AVERAGE GAIN PER DAY RS = ----------------------------- AVERAGE LOSS PER DAY