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Prepared By MAMURA MOULA Batch No. 20th ID No. 51120032 Department of Banking and Insurance
Technical Analysis
Technical analysis is the name given to forecasting techniques that utilize historical share price data. It is a study of past or historical price and volume movements so as to predict the future stock price behavior.
Bullish Trend
During a bull market (upward moving market), there is said to have three phasesFirst phase: The prices would advance with the revival of confidence in the future of business. The future prospects of business in general would be perceived to be promising. Second phase: Prices would advance due to the improvements in corporate earnings. Third phase: Prices would advance due to inflation and speculation.
Bearish Trend
During a bear market (downward moving market), there is also said to have three phasesFirst phase: Prices begin to fall due to abandonment of hopes. Investors begin to sell their shares. Second phase: Companies starts reporting lower profits and lower dividends. This cause further fall in prices due to increased selling price. Third phase: Prices fall further due to distress selling.
Price Charts
Line chart or Closing price chart: The closing prices of share are plotted on the XY graph on a day to day basis. Bar chart: The highest price, the lowest price and the closing price of each day are plotted on a day to day basis. Japanese Candlestick Chart: Shows the highest price, the lowest price, the opening price and the closing price of shares on a day to day basis
Chart Patterns
Support and Resistance Patterns: Support and Resistance are price levels at which the downtrend or uptrend in price movements is reversed. Reversal Pattern: Reversal patterns are chart formations that tend to signal a change in direction of the earlier trend. Continuation patterns: Formed during side way movements of share prices and indicate a continuation of the trend prevailing before the formation of the pattern.
Mathematical Indicators
Moving averages are mathematical indicators of the underlying trend of the price movement. Two types of moving averages (MA) are commonly used by analyst
The simple moving average and The exponential moving average. The closing prices of share are generally used for the
Oscillators:
Oscillators are mathematical indicators calculated with the help of closing price data. They help to identify over bought and oversold conditions and also the possibility of trend reversals. Some of oscillators are :
selling opportunities ahead of the market. RSI for a share is calculated by using the following formula RSI=100-[100/(1+RS)] Where , RS= (Average gain per day/Average loss per day)
Moving Average Convergence and Divergence (MACD): A short-term exponential moving average and a long-term exponential moving average are calculated with the help of the closing price data. The difference between the short-term EMA and the long-term EMA represents MACD.
Market Indicator:
Some of these indicators are discussed below,
Breadth of the Market The difference between the advances and declines is called the breadth of the market. Short Interest: A technical indicator, short selling is called short interest. Odd-lot Index: The odd-lot index is obtained by dividing odd-lot purchase by odd-lot sales. Mutual Fund Cash Ratio: Mutual fund cash as a percentage of their net assets on a daily or weekly or monthly basis has been a popular market indicator. This is an indication of potential purchasing power which can propel a rise in prices.
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