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Technical Analysis: K N Badhani

1. Technical analysis uses historical price and trading volume data to identify patterns and trends that can predict a security's future price movement. 2. Key concepts include support and resistance levels, which represent prices where buying or selling pressure is strongest, and breaking through these levels signals a potential trend change. 3. Volume analysis helps confirm the strength of breakouts, with high volume breakouts more likely to persist than low volume breaks. 4. Moving averages, MACD, and Bollinger Bands are common technical indicators used to identify trends and momentum shifts. 5. Chart patterns like head and shoulders provide visual representations of support/resistance breaks that also signal potential trend changes.

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41 views55 pages

Technical Analysis: K N Badhani

1. Technical analysis uses historical price and trading volume data to identify patterns and trends that can predict a security's future price movement. 2. Key concepts include support and resistance levels, which represent prices where buying or selling pressure is strongest, and breaking through these levels signals a potential trend change. 3. Volume analysis helps confirm the strength of breakouts, with high volume breakouts more likely to persist than low volume breaks. 4. Moving averages, MACD, and Bollinger Bands are common technical indicators used to identify trends and momentum shifts. 5. Chart patterns like head and shoulders provide visual representations of support/resistance breaks that also signal potential trend changes.

Uploaded by

Lalit
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Technical Analysis

K N Badhani
When Fundamental Analysis would
Work
• If we were all totally logical and could separate
our emotions from our investment decisions,
then, fundamental analysis the determination of
price based on future earnings, would work
magnificently

• Investors would seek "overlooked" fundamental


data in an effort to find undervalued securities
When Fundamental Analysis would
not Work
• If prices are based on investor expectations,
then knowing what a security should sell for
(i.e., fundamental analysis) becomes less
important than knowing what other investors
expect it to sell for .
Technical Analysis
• Technical analysis is the process of analyzing a
security's historical prices in an effort to
determine probable future prices.
• This is done by comparing current price action
(i.e., current expectations) with comparable
historical price action to predict a reasonable
outcome.
• Based on the notion that “ we should learn from
the past”.
Line Chart
Bar Chart
Volume and Bar Chart
Japanese candlestick
Japanese candlestick charts
Dow Theory
1. Market Discounts Everything
• Everything known
• Everything foreseeable
• Every condition which can affect the supply
and demand for corporate securities.

• Even unpredictable natural calamities are quickly


apprised and possible affect discounted
2. Three Types of Trends
Tide, Wave and Ripple
3. Market Phases
BULL PHASE BEAR PHASE
Excess Distribution

GREED
Public Participation
Public Participation
FEAR

Accumulation
Panic
4. Principle of Confirmation
Support and Resistance
Support and Resistance…
• A “support” level is the point at which buyers
take control of the prices and prevent them
from falling
• A "resistance" level is the point at which
sellers take control of prices and prevent them
from rising
…Support and Resistance
• Support levels indicate the price where the
majority of investors believe that prices will
move higher,
• and resistance levels indicate the price at
which a majority of investors feel prices will
move lower.

• The development of support and resistance


levels is probably the most noticeable and
reoccurring event on price charts.
Support Level
Support and Resistance Level :
Can we explain with the Laws of Demand and Supply
Change in Expectations: Prices break the resistance
level . The breakout is accompanied with a significant
increase in volume
Level Breakout
• The penetration of support/resistance levels
can be triggered by fundamental changes that
are above or below investor expectations
(e.g., changes in earnings, management,
competition, etc) or by self-fulfilling prophecy
( investors buy as they see prices rise).

• The cause is not as significant as the effect--


new expectations lead to new price levels.
Breakout and Traders’ Remorse
Role of Volume……..
• A good way to quantify expectations following a
breakout is with the volume associated with the
price breakout.
• If prices break through the support/resistance
level with a large increase in volume and the
traders' remorse period is on relatively low
volume, it implies that the new expectations will
rule (a minority of investors are remorseful).
Role of Volume…….
• Conversely, if the breakout is on moderate
volume and the "remorseful" period is on
increased volume, it implies that very few
investor expectations have changed and a
return to the original expectations (i.e.,
original prices) is warranted.
Resistance ↔ Support
• When a resistance level is successfully
penetrated, that level becomes a support
level.
• Similarly, when a support level is successfully
penetrated, that level becomes a resistance
level.
Summary
1. A security's price represents the fair market value as agreed
between buyers (bulls) and sellers (bears).
2. Changes in price are the result of changes in investor
expectations of the security's future price.
3. Support levels occur when the consensus is that the price will
not move lower. It is the point where buyers outnumber sellers.
4. Resistance levels occur when the consensus is that the price
will not move higher. It is the point where sellers outnumber
buyers.
5. The penetration of a support or resistance level indicates a
change in investor expectations and a shift in the
supply/demand lines.
6. Volume is useful in determining how strong the change of
expectations really is.
7. Traders' remorse often follows the penetration of a support or
resistance level as prices retreat to the penetrated level.
Trends and Their Breakout
Moving Averages
Moving Average Convergence-
Divergence (MACD)
• The MACD is calculated by subtracting a 26-
day moving average of a security's price from
a 12-day moving average of its price. The
result is an indicator that oscillates above and
below zero.
• Above Zero= Bullish shift
• Below Zero = Bearish Shift
Bollinger Bands
• MA (20)
• MA+k*sigma , MA-k*sigma (k=2)
• %b (percent bandwidth) =
(price − lowerBB) / (upperBB − lowerBB)
PATTERNS
Head and Shoulders
Candlestick Patterns
Breadth of the Market
• Extent to which movement in the market is
reflected widely in the price movement of
individual shares.
– Advancing-Declining Issues
– Advance-Decline Ratio
– Advance-Decline Line
Confidence Index
• Barron’s Confidence Index:
– Yield of 10 top rated corporate bonds/yield of 10
intermediate grade corporate bonds.
– Higher value indicates bearish market

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