__________________________________________________________________

Connect with us and feel the difference

Share king tips Team Investigates the Share Market Tips given by numerous Websites and Technical Analysts and do an extensive and far-reaching analysis and provide you a filtered, sure shot and clear-cut tips for Long term, Short Term and Intraday Trading.

__________________________________________________________________

Monday, August 11, 2008

TECHNICAL ANALYSIS - OUT OF BOX

Technical Analysis is the science of predicting the movement of stock prices using chart patterns. These charts plot the stock prices against time. When a particular pattern is formed on the stock charts, it gives an indication to the technical analyst as to the direction in which the stock price is headed.

The rationale behind the science of forecasting stock price movements using technical analysis is that market movements are usually predicated by an activity in the stock by informed sources.

It is often observed by investors that the price of particular stock goes up without any apparent reason and when the price is ruling quite high, a positive development is released by the company in the press.

No development of a significant nature, whether it is a takeover, a merger, a large order or a setback in earnings, takes place overnight. Technical analysts believe that well before any major news gets released in the market, the stock is accumulated or sold, depending on the nature of the news by informed circles. It may be fundamental analysts who have got wind of some developments through their research or it may be company insiders.

Any activity of this nature follows three phases viz.

  • Accumulation : Where large quantities of stock are bought without much influencing market prices.
  • Marking up : Where sharp upward price movements are seen due to sellers having sold out and buyers still buying.
  • Distribution : Where stock acquired at low prices are gradually sold out.
This is an example of bullish activity in a stock.

Bearish activity will similarly follow the phases of distribution, marking down and accumulation.

Such activity produces distinct patterns on stock charts. An experienced analyst can spot this pattern and use it to draw his conclusions as to the direction in which the stock should move.

Major patterns are classified into three categories as under:
1. Bullish patterns

  • Inverted Head and shoulders
  • Double bottom
  • Rounding bottom
  • Triangular bottom
2. Bearish patterns

  • Head and shoulders
  • Double top
  • Rounding top
  • Triangular top
3. Continuation patterns

  • Flags
  • Pennants
  • Wedges

Volumes are an important consideration in the studying of patterns and no study can be considered complete unless due regard is given to significant changes in volumes.

Since chart patterns are far from infallible, the concept of stop loss is an important aspect of technical analysis.

When the decision to buy or sell is made a stop loss is also incorporated into the calculations. This gives the investor protection against greater losses should his trade go wrong.

Resistances are determined to indicate to what levels a stock is likely to move up before it meets selling pressure and supports indicate to what level a stock can move down before it encounters buying demand.

Technical analysis therefore relies upon the human element in trading. Its price patterns capture the relative balance between buying and selling as well as directed action by insiders or groups of operators.

DISCLAIMER
Use of this Blog indicates your acceptance of our Disclaimer.
Any action you choose to take in the markets is totally your own responsibility. Sharekingtips.blogspot.com will not be liable for any, direct or indirect, consequential or incidental damages or loss arising out of the use of this information. This information is neither an offer to sell nor solicitation to buy any of the securities mentioned herein. The writers may or may not be trading in the securities mentioned.