Technical  Analysis of Stocks

Introduction

     The technical analysis is the market based method. There is a bye word "You can not beat the market. The market will beat you.  the market has its own way of correction. The bull market rally ignores fundamentals which fuelled by emotional investors take the stocks to unprecedented level and lead  the market to overbought. Especially in a speculative zone prices zoom to dizzy high.  On the other hand in a bear cycle the due to panic and fear fuelled by heavy selling pressure ignores even strong fundamentals and pushes down the prices lower and lower. This situation is called oversold market. the fundamental analysis have wide rage of studies in various levels say economic analysis, industry level analysis and company level analysis. Even then there is no condition that the company's profit or growth may continue to the same previous level. The stock market always discounts the future. If so it never mind the past. The predictive knowledge of the future is more important than analysing the past.

      The super timing of the market is nothing but a pure technical analysis.

Fundamental say what to buy

Technical say when to buy

About Technical analysis:-

       In contrast to fundamental analysis the technical analysis is not concerned with the intrinsic worth of a share. On the other hand it deals with the forces of supply and demand for shares reflected in the behaviour of the market. Technical analysis is a market oriented. A pure technical analysts often not worried about a company's assets, turnover, profits and dividends. He looks at his price chart in order to decide the potential of rise / fall in the immediate future. 

The word technical implies  a study of the market itself and not various external factors which affect the market. according to technical analysts all relevant factors, whatever they may be, get reflected in the volume of the stock exchange transactions, and the level of share prices; or more generally the sum of statistical information generated by the market.

Basic assumptions of technical analysis:-

1. Market price is determined solely by the interaction  of demand and supply of shares.

2. Supply and demand are in turn governed by many rational and irrational factors.

3. The primary trend of the market persists an appreciable time. Minor fluctuations are secondary.

4. Change in shift are caused by the demand and supply of position of shares.

5. Shifts in demand and supply which may change the direction of the primary market, no matter why they occur, can be detected sooner or later in the price charts of market action.

6. The trends, patterns of price charts tend to repeat themselves often.

Major Types of Technical analysis of stocks:-

1. Stock Trend analysis

2. Stock Market Indicators

3. Fibonacci Studies

4. Japanese Candlestick Methods

5. Stock Market Patterns

6. Elliott Wave Theory and other Business Cycle Studies

1.Stock Trend Analysis:-

      In this analysis the bar charts along with moving averages, trend line analysis, and speed resistance lines are discussed.

2. Stock Market indicators:- 

         There are various stock market indicators  which reflects the price trend of the market. Some of the indicators are useful for trend moves of prices. The speculative type indicators are useful to identify the overbought and oversold situation of the market. The volume indicators signals the buyer / seller controls of the market.

3. Fibonacci Studies:-

   The principle from Leonardo Davinci Fibonacci have some good predictive value of the business cycle trends. In earlier days of closed economy some analysts forecasted the market trends with a fixed period cycle. later it failed to give predictive values. In these days the Fibonacci cycle starts  a good analytic  value and it has its own reputation in the stock market till today. There some important tools available in this study. 1, Fibonacci fan  2. Fibonacci Curves 3. Fibonacci Retracement   4. Fibonacci Time zone

4. Japanese Candlesticks Method of analysis:- 

     It is a new dimension of technical analysis. Japanese candlesticks charting and candlestick pattern analysis will help everyone who wishes to have another tools at their disposal.  All the predictions are similar to western bar chart but when it comes to visual appeal and the ability to see the data relationships are easier to understand.  There are various candlestick patterns like Doji, hammer, Hanging man, Morning Star, Evening Star, Harami, Harami Cross, Engulfing bullish and bearish patterns.

5.Stock Market patterns:-

     There are various patterns discussed in the book of technical analysis by John Maghee and these patterns are divided in 3 groups as bullish patterns, bearish patterns and reversal patterns. Whenever prices become stagnant it starts to form a pattern and after a pattern formation the prices again move up or down. Based on the previous repetitions of patterns the study assumes whenever a particular pattern appears the prices will react in the same way as in the previous time happens. the pattern study has also a considerable weightage in the investor world.

6.Elliott Wave Theory:-

     The waves of the sea never surrender. It even roar high when the weather is rough. The waves of the stock market explained in Elliott waves.  The Elliott Wave Theory is a complicated theory based on rhythms found in nature. Elliott argued that there are repetitive, predictable sequences of numbers and cycles found in nature and similar predictable patterns movement in the stocks prices.

     According to his theory, the stock market moves in huge waves and cycles. Superimposed on these waves are smaller waves and superimposed on the smaller waves, even smaller waves and so on.

     Elliott found that the market moves up in a series of five waves and down in a series of three waves. These larger waves may have smaller waves superimposed on them. In addition there are various refinements. For example the third wave should be longer than waves one and five.  He criticised the fixed time cycles but supports the Fibonacci cycle. He applies the golden ratio found in the nature to relate the two waves.

     Unfortunately, because of so called extensions of waves, whereby the odd waves are some times broken down into five smaller waves, it is often difficult to determine which part of the cycle we are in at any given time. However at times, this theory has given experienced interpreters a clear indication  of  the direction in which markets are heading.

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