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Investment Management
Technical Analysis
Unit 4
Technical Analysis
• Technical analysis is a method of evaluating
securities by analysing the statistics generated
by market activity, such as past prices and
volume.
• Technical analysis do not attempt to measure a
security’s intrinsic value, but instead use charts
and other tools to identify patterns that can
suggest future activity.
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Several ways the technician acts
• Technicians believe that behind the fundamentals are
important factors.
• Technicians are not committed to a Buy-and-Hold
Policy
• Technicians do not separate income from capital gains
• Technicians act more quickly to make Commitments
and to take profits and Losses
• Technicians recognize that the more experience one has
with the technical indicators, the more alert one
becomes to pitfalls and failure of investing
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• Technicians insists that the market always
repeats
• Technicians believe that breakouts from
previous trends are important signals
• Technicians recognize that the securities of a
strong company are often weak and those of a
weak company may be strong
• Technicians use charts to confirm
fundamentals
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Basic Technical Assumptions
• Market Discounts Everything
• Price Moves in Trends or Waves
• History Tends to Repeat Itself
Technical analysis is a study of past or
historical price and volume movements so as to
predict the future stock price behaviour.
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Fundamental vs Technical Analysis
Fundamental
Technical
His perspective is long-term in nature. He is
conservative in his approach. He acts on ‘What
should be’
His outlook is short-term oriented. He
is aggressive. He acts on ‘what is’
He adopts a buy and hold policy. He does not
usually expect any significant increase in the value
of his investments in less than a year.
He believes in making a quick buck. He
snuffles his investments quite often
recognizing and foresees changes in
stock prices.
He considers total gain from equity investment
consists of current yield by way of dividends and
long-term gains by way of capital appreciation.
He does not distinguish between
current income and capital gains. He is
interested in short-term profits.
He forecasts stock prices based on economic,
industry and company statistics. The principal
decision variables take the form of earning and
dividends. He makes a judgement of the stock’s
value with a risk –return.
He forecasts security prices by
studying patterns of supply of and
demand for securities. Technical
analysis is study of stock exchange
information.
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Thanks…
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