Unit 2 Technical Analysis

TECHNICAL ANALYSIS
By Shaik Mohammad Imran

CONTENT
• Introduction
• Concepts of technical analysis
• Principles of technical analysis
• Techniques of technical analysis
1. Daily Volumes of transactions
2. Floating Stock
3. Price Trends
4. Rate of change Method (ROC)
5. Japanese Candle Stick Method
6. Dow Theory
7. Elliot Wave Theory
8. Advance and Decline Lines Method
9. Relative Strength Index
SHAIK MOHAMMAD IMRAN

INTRODUCTION
The fundamental analysis reveals the intrinsic value of a share. It also
explains why the share prices fluctuate. The technical analysis will explain
by studying the market price data. The stock market is different from other
markets. The stock market operations will be carried out on a continuous
basis. It is involved in buying and selling of the securities. No individual can
understand the market price and unable to measure them accurately.
The technician can do his guesswork based on important information
such as price and volume statistics only.

CONCEPT OF TECHNICAL ANALYSIS
Technical Analysis attempts to explain and forecast changes in
security prices by studying only the market data. In other words
a study of past share prices behaviour to predict the future
trend is termed as Technical Analysis
Technical
Analysis
Timing Of Investment, Decision, Buy, sell, Hold etc.
Study of market sentiment, Bullishness, Bearishness ,
Congestion etc.
Liquidity in the market, Floating stock, Volume Turnover, Price
trends etc.

PRINCIPLES OF TECHNICAL ANALYSIS
I. The demand supply of securities in the market will determine the prices of the securities.
II. The demand and supply factors of securities are considered to be the main essence of
the change in the security prices.
III. Technical analysis is a method of presenting the data of securities prices in market to
identify by price trends by depicting then on a chart.
IV. Charts have a method of predicting the significant price movements project future
patterns to determine the future prices.
V. Various charts are applied to predict price movements.
VI. Charts are also used to find out the total broad spectrum of the market.
VII. Charts will determine the individual security prices and show the total market index.

TECHNIQUES OF TECHNICAL ANALYSIS
The Technical analysts use various techniques to measures the supply and
demand of shares and forecast their prices. The techniques of technical
analysis are presented below :
1. Daily Volumes of transactions
2. Floating Stock
3. Price Trends
4. Rate of change Method (ROC)
5. Japanese Candle Stick Method
6. Dow Theory
7. Elliot Wave Theory
8. Advance and Decline Lines
Method
9. Relative Strength Index

1.DAILY VOLUMES OF TRANSACTIONS
The stock markets dynamic continues places for buying and selling
securities. The volume and daily turnover of the market reflects the
business activity ad creates liquidity. The stock market quotations
are presented in print media and electronic media. They are
presented in quotations of open, high, low and close. The Changes
between open and close or high and low can be considered in
points or in percentages to reflect the daily volatility, such
fluctuation can be done on weekly , monthly, yearly basis to reflect
the general volatility of the market.

2. FLOATING STOCK
Securities, which are traded in the stock market, are called floating
stock. It is the total number of shares available for trading with the
public. The volume of trade is the part of the floating stock. The high
proportion affecting volumes to floating stock will create greater
liquidity for that security which is to be purchased or sold . The
increase in price and volume trends is the indicators of bullish
market.

3. PRICE TRENDS
Technical analysis is a study of market prices data. The study
involves factors affecting supply and demand schedules, prices,
volume of trading etc., The study of price and volume trends can
be made through the following :
a) The chartist method
b) Moving average method

3. PRICE TRENDS
A)THE CHARTIST METHOD
Generally the technicians depend mostly upon charts of prices
and volumes for the analysis of the prices in the market. A chart
consists of a base line is drawn and prices are marked. The chart
enables us to predict the direction in which a stock will move. There
are three basic types of charts, which are presented below :
1. Line Chart
2. Bar Chart
3. Point ChartSHAIK MOHAMMAD IMRAN

3. PRICE TRENDS
B)MOVING AVERAGE METHOD
An Average is the sum of price of a share over some weekly
periods divided by the number of weeks. This is marked on the
latest date for where a price bar has been plotted. This process

3. JAPANESE CANDLESTICK METHOD
• Japanese Candlestick developed in japan more than 300 years ago.
• This method will reveal any changes in trends in the short term n( one week to
2 weeks).
• It shows scrip Open, Close , High and low in a three- dimensional format.
See Graph in next slide….. With explanation

RATE OF CHANGE (ROC)
This method is useful to indicate more clearly the buy and sell signals. It
indicates the rate of change of the price as compared to the price for a
certain period back. It can be expressed in percentage of positive or
negative.
Rate of changes depicts the speed upward or downward
movements of the price a head of price movement. When the
ROC line is above the zero line, the price is rising and when it is
below the zero line, the price is falling upside crossing indicating
buying opportunities and downwards crossing warn you to sell.

RATE OF CHANGE
To Calculate a x day rate of change, each day’s price is divided
by the price which prevailed x day’s ago and then 1 is
subtracted from the price ratio.
ROC =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑃𝑟𝑖𝑐𝑒
𝑃𝑟𝑖𝑐𝑒 𝑥 𝑃𝑒𝑟𝑖𝑜𝑑 𝑎𝑔𝑜
- 1

STOCK 16-AUG 17-AUG 18-AUG 21-AUG 22-AUG 23-AUG 24-AUG 28-AUG 29-AUG
Profit or
Loss ?
SBIN 282.9 280.75 278.65 274.65 274.1 278.75 280.45 279.3 276.7 -6.2
INFOSYS 976.8 1,021.15 923.1 873.5 877.15 894.5 912.5 941.15 927.55 -49.25
Dr.Reddy’s
Lab
1,998.80 2,010.00 1,982.90 1,933.15 1,984.85 2029.5 2087.9 2045.95 2043.55 44.75
REMINDER !!!!! >>> Are in Profit or Loss today ?

Example of ROC for 7 Days (Infosys)
We have data now .

Step 1 : >>> Copy “Close “ after 7 days now

Step 2 : >>> Now divided close price by prevailed 7 day’s ago
For Example :
987/992 = 0.99

Step 3 : >>> ROC = Ratio -1

0 0 0 0 0 0 0
-0.01 0.00 -0.01
0.04
-0.04
-0.10
-0.11
-0.09
-0.07
-0.04
-0.08
-0.12
-0.1
-0.08
-0.06
-0.04
-0.02
0
0.02
0.04
0.06
0 2 4 6 8 10 12 14 16 18 20
ROC = Ratio -1
Step 4 : >>> By putting ROC = Ratio -1 into line graph

• The ROC values may be positive, negative or Zero.
• X axis represents the time and Y axis represent the values of the
ROC
• When the ROC line is above the zero line, the Price is rising and
when below it price is falling.
• Ideally, one should buy a share that is oversold and sell a share
that is overbought.
• In ROC chart the overbought zone is above the zero line and the
oversold zone is below the zero line.
• Upside crossing indicates a buying opportunity, while a download
crossing indicates a selling opportunity.
Note : The ROC has to be used along with the Price Chart.

MOVING AVERAGE METHOD
An average is the sum of price of a share over some
weekly periods divided by the number of weeks. This is
marked on the latest date for where a price bar has been
plotted. This process is repeated for the pervious data. The
point thus obtained are connected together to give the
moving average line.
A moving average is a simple presentation of historical
data. The data relating is the most important element in
moving average. The each data point is the arithmetic
average of the previous data. A 15 days moving average
measures the average over the previous 15 days trading.

ADVANCE DECLINE LINES
A few stocks may be moving ahead while the majority of stocks
either making no progress or showing declines. The index
relating to advances to decline is known as the advance
decline ratio. This ratio will indicate the relative strength of
upward or downward movement of price. If the advances are
increasing it is an upward phase and the reverse indicates the
downward phase.

Unit 2 Technical Analysis

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Unit 2 Technical Analysis