Technical analysis, Comparative characteristics of technical...

Technical Analysis

The subject of the technical analysis is the study of the dynamics of the exchange information, presented in the form of price charts for the previous periods of time, with the aim of predicting the future direction of their course.

The main provisions of technical analysis are presented in the Dow theory and formulated in the form of the following axioms:

1) the price takes into account all the events that occur;

2) price movement is subject to trends;

3) the history of the stock market is repeated.

The first proposition states that the change in the value of financial instruments takes into account all factors, political, economic and financial, as well as all the rest, up to the psychological state of buyers and sellers. In other words, any change in price is the result of a corresponding change in the set of external factors. Thus, by analyzing price charts and additional technical indicators, the analyst can predict the change in the value of financial instruments in the future. The second proposition says that the market has inertia, i.e. The movement of prices in the market has certain trends. This allows you to analyze the state of the market and make certain predictions of its development. The third position states that the factors that determined the price change in the market in the past will work in the future.

Technical analysis offers two methods for analyzing graphs of stock information - graphical and analytical.

The graphical method of technical analysis is to analyze the price charts in order to predict the change in the rate. The main types of price charts are presented in Table. 6.5. When analyzing the price chart, a support line (a line connecting price minima), a resistance line (a line connecting price maxima) and a trend line (a line describing the direction of the price movement) are built. Forecasting the price dynamics of the market is carried out by analyzing the charts and revealing the figures formed by the price chart. There are two types of similar figures:

• Shapes of a trend change (turn figures), which, under certain conditions, predict a change in the existing trend in the market;

• figures of continuation of the trend, which indicate continuation of the current trend of price changes on the market.

Examples of rotation patterns and patterns of continuation of the trend are shown in Table. 6.6.

The main tools of analytical methods of technical analysis are indicators that can be divided into five groups:

trend indicators, employees to measure its strength and duration. This group of indicators includes a simple moving average, weighted and exponential moving averages, etc .;

variability indicators, which are used to measure fluctuations in the value of the underlying asset. Such indicators are especially important when changing the trend. These include standard deviation, the Bollinger band and the Chaikin indicator;

moment indicators, showing the rate of change of the price for a certain period of time (time, relative strength indicator, trade channel indicator, etc.). These indicators are used to predict the end of the trend;

cycle indicators, which are intended to identify cyclic components and determine their length (Fibonacci time zones, wave indicator, etc.).

Table 6.5

Main types of price charts

Chart Type

Graph View

Application

Linear

Recommended for short time intervals up to several minutes

Histogram (stock chart, line chart, bars)

It is recommended to apply at intervals of more than 5 minutes. Shows the power of bulls (maximum price) and "bears". (minimum price)

Japanese candles

Apply instead of lengths, bars. If the body of the candle is white, then the prices during the day increase, if black - fall

Tic-tac-Toe

Applied to determine resistance and support levels. On the abscissa, the numbers of the groups of transactions are laid down, the prices in which were changed unidirectionally. When the price increases, draw a zero, with a decrease - crosses. An icon (a notch or a cross) is placed when the price changes to a certain value

Trading Volume Chart

The schedule is confirmatory. It indicates the level of market activity

Table 6.6

Some kinds of figures formed by a price chart

Shape Name

Kind of shape

Character of the figure

Head - shoulders

The shape of the turn. The existing trend gradually slows down its movement and changes to the reverse

V-shaped models

The shape of the turn. Fracture of dynamics occurs rapidly

Triangle

The pattern of the continuation of the trend

Flag

Same

These indicators have proven themselves in markets with a high cyclical component (futures markets for seasonal or consumption goods);

market force indicators are used to determine the strength of the current trend (the volume of transactions, the number of open positions) and are confirmatory indicators.

Methods of technical analysis are well developed and widely used in the practice of the exchange game. There are many computer programs, the use of which greatly facilitates the work with these indicators. However, the use of a very large number of indicators leads to a delay in the decision to buy or sell securities, and therefore to unjustified losses. Therefore, it is advisable to use a small number of indicators and to detect market trends at an early stage, in the process of their inception and formation.

Comparative characteristics of technical and fundamental analysis

The difference between fundamental and technical analysis lies both in methods and in the subject matter of the study. The fundamental market explores the specific issuer firm, its technology and organizational structure, which are considered in great detail. At the same time, the state of the markets for raw materials, manufactured products, the industry, and the country's economy as a whole seems to be a few averaged indicators. Technical analysis studies information about transactions in the stock market. At the same time, the state of the market is considered in great detail, and the remaining characteristics are described by a few generalized indicators.

The legitimacy of dividing the task of investment analysis into two parts (technical and fundamental analysis) requires detailed consideration when implementing specific investment programs. Both approaches have a right to exist, and in practice both types of analysis must be applied. Technical and fundamental analysis is used to evaluate various economic categories: technical analysis determines the rate of securities and their dynamics, and the fundamental analysis is the cost of the issuing firm and its change. Therefore, it is natural that the results obtained using these analytical methods do not always coincide. For speculators, momentary price fluctuations are important, so more attention should be paid to the analysis of the current state of the market. A long-term perspective is more important for portfolio investment, therefore, more attention should be paid to the analysis of those assets in which the funds are invested.

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