UNIT III

Technical Analysis
 Fundamental Analysis
• Fundamental approach: economy, industry & company
• Technical approach: It studies about the stock price movements of the security
market.
• Technical analysis is a security analysis methodology for forecasting the direction
of prices through the study of past market data, primary price to volume.

price = volume
supply-demand
 DIFFERENCE
TECHNICAL ANALYSIS FUNDAMENTAL ANALYSIS
• Short term price movements. • Long term price movements.
• Mainly focus on internal market • Fundamental factors relating to
data in particularly price to the economy industry to the
volume data. firm.
• Short term traders • Long term traders
 TECHNICAL TOOLS
1. Dow theory
2. Volume of trading
3. Short selling
4. Odd lot trading
5. Bars & line charts
6. Moving average
7. oscillators
 DOW THEORY
• H0:No single individual or buyer can influence the major trend of the
market
• H1: The market discounts everything.(due to natural
calamities(OR)artificial.
• H2: The theory is not Infallible(Trend is the direction of movement)
• The theory denotes :
Trend is divided into Primary, intermediate, short term trend
• Primary trend: upward or downward movement that may lost for a year OR two
• Intermediate trend: corrective movements, which may last for three weeks to
three months.
• Short term trend: day to day price movements .if also as oscillations or
fluctuations.
TREND:
Increase => rising trends
Fall => falling trends
Remain flat => flat trends
 BULL MARKET
• The security price trend may be either increasing or decreasing when
the market exhibits the increasing trend it is called bull market
• It shows three clear cut peaks
T1-revival of market confidence
T2-good corporate earnings
T3-speculation
 BEAR MARKET
Phase1- loss of hope
Phase2 - recession in business
Phase3 - distress selling
 INDICATORS
1. volume of trade : volume falls with rise in price or vice versa.
2. Breadth of the market : to study the advances & declines that have
occurred in the stock market.
 Advances mean the number of shares whose prices have increased from
the previous days trading
 Declines indicate the fallen price of trading.
 Short sales
• Short selling is a technical indicator known as short interest. short sales
refer to the selling of shares that are not owned.
Odd lot trading:
 Shares are generally sold in a lot of hundred
 Shares sold in smaller lots fewer than 100 are called odd lot such buyers
& sellers are called odd letters.
 MOVING AVERAGE
• Short term trend-10days to 30 days
• Medium term trend-50 days to 125 days
• Long term trend 200 days moving average.
Index to stock price moving average
Individual stock price is compared with the stock market indices.
 OSCILLATORS
• It indicate the market momentum or SCRID momentum
• It indicates:
 overbought to oversold conditions of the market.
Signaling the possible trend reverse
Rise or decline in the momentum
 EFFICIENT MARKET THEORY
• It states that the share price fluctuations are random do not follow any
regular pattern.
• Basic concepts:
1. Market efficiency
2. Liquidity traders
3. Information traders
 MARKET EFFICIENCY
• The expectation of the investor regarding the future outflows are
translated or reflected on the share price.
• Operational efficiency: it is measured by factors like time taken to
execute the order & the number of bad deliveries
• Informational efficiency: in the form of economic reports company
analysis political statements & announcements of new industrial
policy.
 LIQUIDITY TRADERS
• These traders investment to resale of shares depend upon their individual
fortune.
• Informational traders: they analyse before adopting any buy or sell
strategy. they estimate the intrinsic value of shares for the purpose of
buying to selling
 THE RANDOM WALK THEORY:

• In 1900 a trench mathematician named Couis bachelier wrote a paper

suggestions that security price fluctuations were random
• Fema in 1970 he stated that efficient markets fully reflect the available
information.
Levels of information to the market

Weekly efficient
market

Semi strong

Strong efficient