TECHNICA

L
ANALYSIS
SWATI
GOEL
ROLL NO.
 WHAT IS
TECHNICAL
ANALYSIS?

• Approach to security analysis to study the

stock price behaviour.
• Forecasting techniques that utilises historical
share price data.
• The basic premise of technical analysis is that
prices move in trends or waves which may
be upward or downward.
• Study of past/ historical price and volume
movements so as to predict the future stock
price behaviour.
 PRINCIPLES OF TECHNICAL
ANALYSIS:
• The market value of a security is related to demand
and supply factors operating in the market.
•

• There are both rational and irrational factors which

surrounds the supply and demand factors of a
security.
•

• Security prices behave in a manner that their

movement is continuous in a particular direction
for some length of time.
•

• Trends in stock prices have been seen to change

when there is a shift in the demand and supply
factors.
•

• The shifts in demand and supply can be detected

through charts prepared specially to show market
actions.
•
DIFFERENCE BETWEEN TECHNICAL
ANALYSIS AND FUNDAMENTAL
ANALYSIS
POINTS OF FUNDAMENTAL TECHNICAL ANALYSIS
DIFFERENC ANALYSIS
E
 STUDY Intrinsic value by evaluating
the fundamental factors
affecting the economy,
industry, and company.
2. RESULT Identifies undervalued or
overvalued securities.
3. DATABASE Economical information,
industry information,
company information
The prices and volume movements
in the market and by carefully
examine the patterns of these
movements, the future price of the
stock is predicted.
Identifies the best time of an
investment i.e. The best time to
buy or sell a security identified by
fundamental analysis.
Historical data of shares like
prices and volumes
 TOOLS OF
TECHNICAL
ANALYSIS
1.
2.CHARTS PATTERN:- SUPPORT AND
RESISTANCE


• Support levels occurs when price is falling but

bounces back or reverses direction every
time it reaches a particular level. Support
level is that price level at which sufficient
buying pressure is exerted to halt the fall in
prices.
•

• Resistance level occurs when the share prices

moves upwards. The price may fall back
every time it reaches a particular level.
 Formulation & chart for support
and resistance
•
• PIVOT POINTS for resistance and support
of a
particular stock:
 H = PREVIOUS DAYS HIGH
L = PREVIOUS DAYS LOW
C = PREVIOUS DAYS CLOSE

PIVOT POINT: P = (H+C+L) / 3



R1 = (P x 2) - L
R2 = P + (H - L) 
S1 = (P x 2) - H
S2 = P - (H - L) 
MATHEMATICAL INDICATORS:
Ø OSCILLATORS:
§ RATE OF CHANGE INDICATOR (ROC): it is a
very popular oscillator which measures the
rate of change of the current price as
compared to the price a certain number of
days or weeks back.
 e.g. to calculate a 7 days rate of change, each
day’s price is divided by the price which
prevailed 7 days ago and then 1 is subtracted
from this price ratio.


 current price ₋1
 price ‘n’ period ago
 e.g.:-
DAYS CLOSING CLOSING PRICE RATIO ROC= RATIO-1
PRICE PRICE 7 DAYS
1 70 -AGO - -
2 72 - - -
3 73 - - -
4 70 - - -
5 74 - - -
6 76 - - -
7 77 - - -
8 75 70 1.07 0.07
9 78 72 1.08 0.08
10 80 73 1.10 0.10
11 79 70 1.13 0.13
12 78 74 1.05 0.05
13 76 76 1.00 0.00
14 75 77 0.97 -0.03
15 77 75 1.03 0.03
16 78 78 1.00 0.00
•
• RELATIVE STRENGTH INDEX (RSI):
 this is a powerful indicator that signals
buying and 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
DAYS CLOSING PRICE GAIN LOSS
1 130 - -
2 132 2 -
3 130 - 2
4 135 5 -
5 137 2 -
6 134 - 3
7 136 2 -
8 140 4 -
9 140 - -
10 142 2 -
11 139 - 3
12 141 2 -
13 145 4 -
14 143 - 2
15 145 2 -
TOTAL 25 10


 14 days average:
 Gain: 25/9 = 2.77
 Loss: 10/4 = 2.50


 RS: 2.77/ 2.50 = 1.108



 RSI = 100 - [100/(1+1.108)]

 = 100 - [100/2.108]
 = 100 – 47.4 = 52.6
 RSI
CHART
RSI
VALUE

SELL

BUY

TIME
 MARKET
INDICATORS:
• Technical analysis focuses its attention not
only on individual stock price behaviour,
but also on the general trend of the market.
Indicators used by the analyst to study the
trend of the market as a whole know as
Market Indicators. Breadth of the market is
one of them.
•

• Breadth of the market: by comparing the

number of shares which advances and the
number of shares that declined during the
period, the trend of the market can be
ascertained. Which means measuring the
dispersion or breadth of a general price rise or
decline.
DAY ADVANCES DECLINES DAILY BREADTH
• DIFF
•
MON 620 350 270 270
•
TUE 470 510 -40 230
•
WED 360 610 -250 -20
•
•
THU 585 380 205 185
•FRI 705 270 435 620
•
•
• The index is plotted as a line graph and
compared with the market index.
• Normally breadth and market index move
Ø
Ø LIMITATION OF TECHNICAL
ANALYSIS:


üNot an accurate method of analysis.

ü
üDifficult to identify the patterns
underlying stock price movements.
ü
üNot easy to interpret the meaning of
patterns and likely impact on future
prices movements.
•