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- Technical analysis is not based on strong conceptual framework, but depends fully on the use of historical trends to predict future prices. Though technical and fundamental analysis provide diagonally opposite approaches to valuation, in practice, a judicious blend of the two approaches is attempted to arrive at better results.
- The technical analysis is done from important points of view namely, price, time, volume and breadth. The Dow theory is one of the oldest methods of identifying trends and it has six basic tenets.
- The basic tool in Technical Analysis is movement in prices, measured by charts. The analyst uses line chart, bar chart and point and figure chart. He is also called chartist.
- Stock prices tend to move more or less in tandem with the overall market trends, represented by a market index: relative strength refers to the ability of an industry or stock to outperform the market at turning points. It arises on account of inherent strength in the industry.
- Moving averages can help to determine the share price when they appear to move rather haphazardly and be very volatile. There are three basic types of moving averages namely simple moving averages, weighted moving average and exponential moving average.
- The Rate of Change (ROC) of index is widely used to measure the momentum of price changes. Momentum measures the rate at which prices rise or fall and is based on the principle that prices usually rise at the fastest pace well ahead of their peak, and decline at their greatest speed before their trough.
- Stochastic is a price velocity technique based on the theory that as prices increase, closing prices have tendency to be ever nearer to the peak reached during that period.