Course Name: Investment Management

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BH
Instructor
Dr. Anindita Chakraborty
Institute of Management Studies
Banaras Hindu University
 Module VII: Technical Analysis
Lecture 01: Overview
 Meaning

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 Philosophy of technical analysis
 Assumptions

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 Myths of technical analysis
 Fundamental vs. Technical Analysis
 Dow theory
 Importance of Dow theory
 Pros & cons of Dow theory
 Introduction
• The market reacted yesterday to the report of a large increase in the short
interest on the BSE.
• Although the market declined today, it was not considered bearish because of the
light volume.

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• The market declined today after three days of increases due to profit taking by
investors.

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• There are numerous technical trading rules and all of them have their rationale.
• Technical analysts develop technical trading rules from observations of past price
movements of the stock market and individual stocks.
• It also differs from fundamental analysis, which involves making investment
decisions based on the examination of the economy, an industry, an company
variables that lead to and estimate of value for an investment, which is then
compared to the prevailing market price of the investment.
 Contd….
• Technical analysts see no need to study the fundamentals to arrive at an estimate
of future value because they believe that past price movements will signal future
price movements.
• Technical analysts also believe that a change in the price trend may predict a

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forthcoming change in the fundamental variables such as earnings and risk before
the change is perceived by most fundamental analysts.

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• Are technicians correct? Many investors using these techniques claim to have
experienced superior rates of return on many investments. In addition, many
newsletter writers base their recommendations on technical analysis. Finally,
even the major investment firms that employ many fundamental analysts also
employ technical analysts to provide investment advice. Numerous investment
professionals and individual investors believe in and use technical trading rules to
make their investment decisions.
 Meaning
• Technical analysis is the evaluation of securities by means of studying statistics
generated by market activity, such as past prices and volume.
• Technical analysts do not attempt to measure a security's intrinsic value but
instead use stock charts to identify patterns and trends that may suggest what a

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stock will do in the future.
• Technical analysis is the study of market action, primarily through the use of

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charts, for the purpose of forecasting future price trends.
• The term "market action" includes the three principal sources of information
available to the technician—price, volume, and open interest. (Open interest is
used only in futures and options.)
 Philosophy
There are three premises on which the technical approach is based:
1. Market action discounts everything
• Only considers price movements, ignores fundamental factors.

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• Assumes stock price reflects everything.
• All fundamentals are priced into the stock.

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2. Prices move in trends.
• Price movements are assumed to follow particular trend.
• Most technical strategies are based on this assumption.
3. History repeats itself.
• Market participants provide consistent reaction to similar market stimuli over time.
 Assumptions
• Technical analysts base trading decisions on examinations of prior price and
volume data to determine past market trends from which they predict future
behaviour for the market as a whole and for individual securities. Several
assumptions lead to this view of price movements:
The market value of any good or service is determined solely by the interaction of

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supply and demand.
Supply and demand are governed by numerous rational and irrational factors.

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Included in these factors are those economic variables relied on by the
fundamental analyst as well as opinions, moods, and guesses. The market weighs
all these factors continually and automatically.
Disregarding minor fluctuations, the prices for individual securities and the
overall value of the market tend to move in trends, which persist for appreciable
lengths of time.
Prevailing trends change in reaction to shifts in supply and demand relationships.
These shifts, no matter why they occur, can be detected sooner or later in the
action of the market itself.
Technical View of Price Adjustment to New Information

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 Myths of Technical Analysis
• Technical analysis is only for intraday trading
• Only retail traders use technical analysis
• Low success rate

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• Technical analysis is easy
•

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Technical analysis accurately predicts the price
• Technical analysis is profitable with a higher winning rate
 Fundamental Vs. Technical Analysis
Parameter Fundamental Technical

The main aim is to use various tools and

The primary objective is to gauge if a stock is
Primary objective charts to find out a stock’s future price
overvalued or undervalued.
movements.

It’s typically used with a short-term

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Investment time It’s typically used with a long-term
investment horizon to find out short-
frame investment horizon.
term price movement.

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Takes into account present and past data for
Considerations Considers only historical data.
analysis.

Incorporates various chart patterns and

Tools and techniques Incorporates various metrics like financial
technical indicators such as moving
used ratios, discounted cash flows, etc.
averages, etc.

Considers various macroeconomic factors

Factors taken into Factors in transactional volume, trend
(inflation, GDP, etc.) industry benchmark, and
account analysis, moving averages, etc.
company’s performance, among others.
 Dow Theory
• The Dow Theory is an approach to trading developed by Charles H. Dow, who,
with Edward Jones and Charles Bergstresser, founded Dow Jones & Company, Inc.
and developed the Dow Jones Industrial Average in 1896.
• Dow propounded the theory in a series of editorials in the Wall Street Journal,

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which he co-founded.
• Dow believed that the stock market as a whole was a reliable measure of overall

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business conditions within the economy and that by analyzing the overall market,
one could accurately gauge those conditions and identify the direction of
significant market trends and the likely direction individual stocks would take.
 Contd….
In the words of Charles Dow:
“The market is always considered as having three movements, all going at the
same time. The first is the narrow movement from day to day. The second is the

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short swing, running from two weeks to a month or more; the third is the main
movement, covering at least four years in its duration.”

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 Contd….
• Hypothesis:- Dow Theory is based on the hypothesis that the stock market does not
perform on a random basis. Rather, it is guided by some specific trends.
• Three types of specific trends have been named in Dow Theory

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PRIMARY TREND: The primary trend is the long-term trend that generally lasts for a
year or more. This trend is characterized by a sustained movement in one direction,
either upward or downward. It also represents the overall market sentiment.

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SECONDARY TREND: The secondary trend is a corrective movement that lasts for
several weeks to several months. It moves in the opposite direction of the primary
trend and represents a counter-trend movement. However, this trend does not
necessarily reverse the primary trend but rather is a temporary pullback or correction.
MINOR TREND: The minor trend is the short-term trend that lasts for a few days to a
few weeks. Therefore, this trend moves in the same direction as the primary trend and
is often caused by short-term fluctuations in supply and demand.
 How the Dow Theory Works?
There are six main components to the Dow theory.
1. The market discounts everything
2. There are three primary kinds of market trends

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3. Primary trends have 3 phases

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4. Indices must confirm each other
5. Volume must confirm the trend
6. Trends persist until a clear reversal occurs
 Phases of Primary Trends
• According to the Dow Theory, the primary bull and bear trends pass through
three phases.
A bull market's phases are the:
• Accumulation phase: Prices rise alongside an increase in volume.

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• Public participation (or big move) phase: Retail and average investors begin to
notice the upward trend and join in—generally, this is the longest phase.

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• Excess phase: The market reaches a point where experienced investors and
traders begin exiting their positions while the larger average investing population
continues to add to their positions.
 Phases of Primary Trends

A bear market's phases are the:

• Distribution phase: Where news of a decline begins to be distributed

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throughout the investing community via various channels.
• Public participation phase: Opposes that of a bull market

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participation phase—average and retail investors are selling stocks
and exiting positions to reduce losses. Again, this is generally the
longest phase.
• Panic (or despair) phase: Investors have lost all hopes of a correction
or full reversal and continue selling at scale.
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Source: [Link]
 Importance of Dow Theory
• Understanding market trends: The Dow’s Theory helps investors understand the
direction of the overall market trend. By analyzing the primary, secondary, and minor
trends, investors can make more informed investment decisions.
• Identifying stock trends: Dow Theory can help investors identify the trends of individual

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stocks. By understanding the stock’s trend, investors can make better decisions about
when to buy or sell.

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• Technical analysis: The Dow Theory is a key tool in technical analysis. It helps investors
identify support and resistance levels, as well as important trend lines.
• Risk management: Dow’s Theory can help investors manage risk. By understanding the
trend of the market, investors can adjust their portfolios to protect against potential
losses.
• Long-term investing: The Dow Theory is useful for long-term investors who are
interested in investing in the stock market. By understanding the long-term trends,
investors can make better decisions about which stocks to invest in.
 Pros of Dow Theory
• Long-term perspective: Dow Theory is based on long-term market trends. It can
provide investors with a big-picture view of market movements. It can also help
investors avoid knee-jerk reactions to short-term market fluctuations and focus
on long-term growth potential.

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• Easy to understand: This theory is based on simple principles. The theory

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provides clear guidelines on how to identify market trends, and it can be a useful
tool for investors looking to better understand market behaviour.
• Follows market trends: The Dow process is based on the idea that the market is
always right. And it helps investors follow the current trend. By identifying the
trend, investors can make better decisions about when to buy and sell securities.
 Cons of Dow Theory
• Not always accurate: While the Dow Theory is a useful tool for analyzing market
trends, it is not always accurate in predicting future market movements. There
are various external factors, such as political and economic events, that can
influence market behaviour and make it difficult to rely solely on the Dow Theory.

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• Ignores other important factors: The Dow process focuses primarily on market
trends and does not take into account other important factors that can affect

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market behaviour, such as company fundamentals, macroeconomic indicators,
and industry trends. Therefore, it may not provide a comprehensive picture of
the market.
• Limited to 30 stocks: The Dow Jones Industrial Average only includes 30 large-cap
stocks, which may not be representative of the entire market. This limited sample
size may not accurately reflect the performance of the broader market or certain
sectors, which may limit the usefulness of the Dow Theory for some investors.
 Thank you
Suggested readings:
[Link] Chandra: Investment Analysis & Portfolio Management, McGraw-Hill

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Education.
2.M. J. Pring: Technical analysis explained: The successful investor's guide to

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spotting investment trends and turning points, McGraw-Hill Education.
3.J. J. Murphy: Technical analysis of the financial markets: A comprehensive guide
to trading methods and applications, New York Institute of Finance.
[Link], Z., Kane, A, Marcus, A.J., and Mohanty, P. :Investments, Tata McGraw-Hill.
[Link] Punithavathy: Security Analysis and Portfolio Management, Himalaya
Publishing House Pvt. Ltd.
Course Name: Investment Management

U
BH
Instructor
Dr. Anindita Chakraborty
Institute of Management Studies
Banaras Hindu University
 Module VII: Technical Analysis

Lecture 02: Charting Techniques

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 Meaning

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 Line chart
 Bar chart
 Candlestick
 Point and figure chart
 What is a chart?
• Charts are the working tools of technical analysts. They use charts to plot the
price movements of a stock over specific time frames.
• It’s a graphical method of showing where stock prices have been in the past.

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• A chart gives us a complete picture of a stock’s price history over a period of an
hour, day, week, month or many years.
• It has an x-axis (horizontal) and a y-axis (vertical). Typically, the x-axis represents

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time; the y-axis represents price.
• By plotting a stock’s price over a period of time, we end up with a pictorial
representation of any stock’s trading history.
• A chart can also depict the history of the volume of trading in a stock. That is, a
chart can illustrate the number of shares that change hands over a certain time
period.
 Types of Charts

Line charts

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Bar Charts

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Candlesticks

Point & Figure

 Line charts
• “Line charts” are formed by connecting the closing prices of a specific stock or
market over a given period of time.
• Line chart is particularly useful for providing a clear visual illustration of the trend

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of a stock’s price or a market’s movement.
• It is an extremely valuable analytical tool which has been used by traders for past

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many years.
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 Usage of Line Chart
• Line charts are recommended for novice traders as they are simple and beneficial
for learning basic chart reading skills. Additional tools like volume and moving
averages can be easily integrated for further education.
• Line charts may not offer sufficient price data for certain traders who need open,

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high, and low prices for strategies.
• Also, traders who use more information than just the closing price do not have
enough information to back-test their trading strategy by using a simple line

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chart.
 Benefits of Line Charts
• Simplicity
• Clear trend identification
• Minimal noise

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• Good for long-term analysis
• Focus on closing prices

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• Ideal for comparisons
• Quick overview of support and resistance levels
• Easily combined with other indicators
• Efficient for portfolio monitoring
• Useful for various time frames
 Bar chart
• Bar chart is the most popular method traders use to see price action in a stock
over a given period of time.
• Such visual representation of price activity helps in spotting trends and patterns.
Although daily bar charts are best known, bar charts can be created for any time

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period. For example weekly and monthly.
• A bar shows the high price for the period at the top and the lowest price at the

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bottom of the bar. Small lines on either side of the vertical bar serve to mark the
opening and closing prices.
• The opening price is marked by a small tick to the left of the bar; the closing price
is shown by a similar tick to the right of the bar.
• Many investors work with bar charts created over a matter of minutes during a
day’s trading
 Contd….

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 Benefits of Bar Chart
• Visualizing price patterns: These charts visually represent market price
movements which make it easier to identify market patterns and trends. Traders
can visually analyze the highs, lows, and opening and closing prices within specific
periods. Furthermore, traders can use them to identify support and resistance

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levels, trend lines, and chart patterns.

• Identifying trends: Helps in determining market trends. Traders can identify price

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trends by observing the sequence of the bars.
• Assessing volatility: The bar's length in these charts depicts the price range
during a specific time frame. A more extended bar indicates higher price volatility,
whereas a shorter bar indicates lower volatility. Traders can assess the market
volatility accurately through these charts. Moreover, they help traders in
adjusting risk management strategies and position sizing.
 Contd….
• Determining support and resistance levels: Aids traders in identifying support
and resistance levels. These levels signify areas where the price tends to find
support during declines or faces resistance during advances. By identifying these
levels, traders can make more accurate predictions about potential price trends,

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reversals, or breakouts.

• Historical analysis: These charts provide a historical outlook on the market price

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movements. They allow investors to analyze previous market behavior and
identify recurring price trends. This historical analysis can help traders make
informed decisions based on previous price actions and augment their
understanding of the market dynamics.
 Candlesticks
• While candlesticks remain one of the oldest charts to be used for price analysis in
Japan, the Western world became aware of this charting technique only in the
1980s.
• Candlestick charts provide visual insight to current market psychology.

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• A candlestick displays the open, high, low, and closing prices in a format similar to
a modern-day bar-chart, but in a manner that extenuates the relationship

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between the opening and closing prices.
• Candlesticks don’t involve any calculations. Each candlestick represents one
period (e.g., day) of data.
• A candlestick chart can be created using the data of high, low, open and closing
prices for each time period that you want to display.
 Contd….
• While in a bar chart, the open and close prices are depicted by a tick/mark on the
right and left side of the middle bar, whereas, in a candlestick, it is represented by
the rectangular ‘body’ of the candle.

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• Bullish candles are blue/white/green/hollow in color, whereas bearish ones are
orange/red/black.

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• However, most technical analysis platforms allow to customize the color of the
candlesticks. These charts can be used by when investor want to identify and
determine possible changes in the price based on past price patterns.
 Contd….

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 Benefits of Candlesticks
• Candlesticks provide a clear and intuitive representation of price action.
• Candlesticks make it easy to identify various price patterns
• Candlesticks capture the battle between buyers and sellers, offering insights into the
psychology of the market.

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• Candlestick charts can be used on any time frame (e.g., 1-minute, 1-hour, daily, weekly),
making them versatile for both short-term traders and long-term investors.

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• Candlesticks can easily indicate areas of support and resistance, helping traders make
decisions about entry, exit, and stop-loss placement.
• The length and color of the candlestick's body provide a clear indication of momentum.
• Candlestick charts can be effectively combined with other technical indicators (e.g.,
moving averages, RSI, Bollinger Bands) to enhance trading strategies.
• Candlestick charts are useful in all types of markets, including stocks, forex, commodities,
and cryptocurrencies.
 Point and Figure Chart
• The Point and Figure chart is not well known or used by the average investor but
it has had a long history of use dating back to the first technical traders.
• This type of chart reflects price movements and is not as concerned about time

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and volume in the formulation of the points.
• In order to prepare this type of graph, the analyst has to decide as to what is a

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significant price change.
• It uses a chart with "X"s and "O"s for predicting financial asset prices. The "X"s
are used to indicate rising prices and "O"s to indicate falling prices.
 Contd….

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 Contd….
• Although Point and Figure charts are easy to understand, they share a significant
disadvantage. The Point and Figure charts are typically slow to react to price
changes.

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• So, when do you use Point and Figure Charts?
Investors can use these charts to visualize trends without considering the period.

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Also, it provides easy visualization of support and resistance.
 Benefits of P&F
• P&F charts ignore minor price fluctuations and only record significant price movements,
filtering out market “noise.”
• P&F charts are designed to highlight the ongoing battle between supply and demand.
• Unlike traditional charts, P&F charts don’t have a time axis; they are constructed based
purely on price movements.

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• P&F charts are one of the best tools for identifying long-term trends, as they clearly
show whether an asset is in an uptrend or downtrend.

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• P&F charts are highly effective in spotting breakout points, as they mark when the price
moves beyond a certain threshold (box size).
• P&F charts offer a clear view of historical support and resistance levels because they
emphasize significant price changes.
• Because P&F charts filter out short-term fluctuations, they are particularly well-suited for
long-term trend analysis.
• P&F charts are versatile and can be used for a variety of markets, including stocks, forex,
commodities, and cryptocurrencies.
 Renko Chart
• The Renko chart is a unique charting tool in technical analysis that focuses
exclusively on significant price movements rather than time or volume. Renko,
derived from the Japanese word "renga" (meaning "brick"), filters out minor price
fluctuations, making it easier for traders to spot trends, breakouts, and reversals.

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• Renko charts are constructed using "bricks" that represent a fixed price
movement. A new brick is added only when the price moves a set amount (the

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“box size”) above or below the previous brick.
Bullish Bricks: Typically represented by green or white bricks, indicating
upward price movement.
Bearish Bricks: Typically represented by red or black bricks, indicating
downward price movement.
• Renko charts do not account for time. They only change when a price movement
meets or exceeds the predefined box size, filtering out market noise.
 Contd….

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 Heikin Ashi
• The Heikin Ashi (also spelled Heikin-Ashi) chart is a modified candlestick chart
used in technical analysis to better visualize trends by smoothing price data.
• Unlike regular candlestick charts, Heikin Ashi incorporates averaging, making it

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easier to identify trends, trend reversals, and consolidations.
• There are five primary signals used in Heikin-Ashi charts.

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• Heikin-Ashi charts can be used in any market.
 Primary Signals
• Hollow or green candles with no lower "shadows" indicate a strong uptrend.
• Hollow or green candles signify an uptrend.
• Candles with a small body surrounded by upper and lower shadows indicate a

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trend change: Risk-loving traders might buy or sell here, while others will wait for
confirmation before going long or short.

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• Filled or red candles indicate a downtrend.
• Filled or red candles with no higher shadows identify a strong downtrend: Stay
short until there's a change in trend.
 Contd….

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 Thank you
Suggested readings:
[Link] Chandra: Investment Analysis & Portfolio Management, McGraw-Hill

U
Education.
2.M. J. Pring: Technical analysis explained: The successful investor's guide to

BH
spotting investment trends and turning points, McGraw-Hill Education.
3.J. J. Murphy: Technical analysis of the financial markets: A comprehensive guide
to trading methods and applications, New York Institute of Finance.
[Link], Z., Kane, A, Marcus, A.J., and Mohanty, P. :Investments, Tata McGraw-Hill.
[Link] Punithavathy: Security Analysis and Portfolio Management, Himalaya
Publishing House Pvt. Ltd.
 Module VII: Technical Analysis

Lecture 03: Technical Indicators-I

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 Support & Resistance

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 Technical Indicators
 Volume of trade
 Breadth of the market
 Short sales
 Odd lot trading
 Support and Resistance Level
• Support and resistance represent key junctures where the forces of supply and
demand meet.
• In the financial markets, prices are driven by excessive supply (down) and demand

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(up).
• Supply is synonymous with bearish, bears and selling.

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• Demand is synonymous with bullish, bulls and buying.
• These terms are used interchangeably.
• As demand increases, prices advance and as supply increases, prices decline.
• When supply and demand are equal, prices move sideways as bulls and bears slug
it out for control.
 What is Support?
• Support is the price level at which demand is thought to be strong enough to
prevent the price from declining further.
• The logic dictates that as the price declines towards support and gets cheaper,

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buyers become more inclined to buy and sellers become less inclined to sell.
• By the time the price reaches the support level, it is believed that demand will

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overcome supply and prevent the price from falling below support.
• Support does not always hold and a break below support signals that the bears
have won out over the bulls.
• A decline below support indicates a new willingness to sell and/or a lack of
incentive to buy.
 Contd….
• Support breaks and new lows signal that sellers have reduced their expectations
and are willing to sell at even lower prices.
• In addition, buyers could not be coerced into buying until prices declined below

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support or below the previous low. Once support is broken, another support level
will have to be established at a lower level.

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 Resistance
• Resistance is the price level at which selling is thought to be strong enough to
prevent the price from rising further.
• The logic dictates that as the price advances towards resistance, sellers become

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more inclined to sell and buyers become less inclined to buy.
• By the time the price reaches the resistance level, it is believed that supply will

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overcome demand and prevent the price from rising above resistance.
 Contd…
• Resistance does not always hold and a break above resistance signals that the bulls
have won out over the bears.
• A break above resistance shows a new willingness to buy and/or a lack of incentive

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to sell.
• Resistance breaks and new highs indicate buyers have increased their expectations

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and are willing to buy at even higher prices.
• In addition, sellers could not be coerced into selling until prices rose above
resistance or above the previous high.
• Once resistance is broken, another resistance level will have to be established at a
higher level.
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 Contd….
• Identification of key support and resistance levels is an essential ingredient to
successful technical analysis.
• Even though it is sometimes difficult to establish exact support and resistance
levels, being aware of their existence and location can greatly enhance analysis and

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forecasting abilities.
• If a security is approaching an important support level, it can serve as an alert to be

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extra vigilant in looking for signs of increased buying pressure and a potential
reversal.
• If a security is approaching a resistance level, it can act as an alert to look for signs
of increased selling pressure and potential reversal.
• If a support or resistance level is broken, it signals that the relationship between
supply and demand has changed. A resistance breakout signals that demand
(bulls) has gained the upper hand and a support break signals that supply (bears)
has won the battle.
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Technical Indicators

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 Volume of Trade
• Dow gave special emphasis to volume. Technical analysts use volume as an
excellent method of confirming the trend.
• Volume is counted as the total number of shares that are actually traded (bought

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and sold) during the trading day or specified set period of time. It is a measure of
the total turnover of shares.
• Each ticket represents a trade and counted towards the total trading volume. While

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the same shares may be traded back and forth multiple times, the volume is
counted on each transaction.
• Therefore, if 500 shares of XYZ were bought, then sold, then re-bought and then
re-sold again resulting in four tickets, then the volume would register as 2,000
shares, even though the same 500 shares may have been in play multiple times.
 Contd…
• Therefore, the analyst looks for a price increase on heavy volume relative to the
stock’s normal trading volume as an indication of bullish activity.
• Conversely, a price decline with heavy volume is bearish.

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• A generally bullish pattern would be when price increase are accompanied by
heavy volume and the small price increase reversals occur with the light trading

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volume, indicating limited interest in selling and taking profits and vice-versa.
 Pros of Volume of Trade
• Confirms price trends: High trading volume confirms the strength of a price trend. For
example, if a stock is moving upward with increasing volume, it indicates strong buying
interest and increases the likelihood that the uptrend will continue. Similarly, if a price
decline is accompanied by high volume, it signals strong selling pressure, validating the
downtrend.

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• Helps identify reversals: Spikes in volume can be early indicators of potential trend
reversals. When an asset has been in an uptrend and suddenly experiences a surge in

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volume coupled with a sharp price drop, it may indicate a shift from a bullish to a bearish
trend. Likewise, increasing volume during a downtrend followed by a price surge
suggests potential bullish reversal.
• Indicates market interest: High volume generally indicates strong market interest in an
asset. High volume implies liquidity, making it easier for traders to enter or exit positions
without significant price impact. This is especially useful for large institutional investors
who need high volume to facilitate their trades.
 Contd….
• Provides insights into market sentiment: Volume can offer insights into
market sentiment, with increasing volume during rallies reflecting bullish
sentiment and increasing volume during declines reflecting bearish
sentiment. It allows traders to gauge whether the sentiment is in line with
the price movement, providing additional confirmation for trades.

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• Useful for assessing divergence: Volume divergence can provide valuable
trading signals. For example, if the price is making higher highs, but volume

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is decreasing, it could signal weakening momentum, suggesting a potential
reversal. Conversely, if the price is making lower lows, but volume is
decreasing, it may indicate that sellers are losing momentum, suggesting a
potential bullish reversal.
• Adaptable to various timeframes: Volume can be applied to different
timeframes, making it suitable for day trading, swing trading, or long-term
investing. It provides a versatile tool for traders across various markets,
including stocks, forex, commodities, and cryptocurrencies.
 Cons of Volume of Trade
• Lack of context: High or low volume alone does not provide clear directionality.
• Susceptibility to false signals: Volume spikes can sometimes produce false
signals. Sudden volume increases may result from news events, rumours, or

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temporary market inefficiencies, which might not reflect the underlying trend or
sentiment. Traders need to be cautious and confirm volume-based signals with
other indicators to avoid being misled by short-lived volume surges.

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• Can be misinterpreted: Volume data can be misleading when not properly
interpreted in conjunction with price action.
• Difficult to compare across assets: Volume levels vary significantly between
different assets, making direct comparisons challenging.
 Breadth of the Market
• The breadth of the market is the term often used to study the advances and
declines that have occurred in the stock market.
• Advances mean the number of shares whose prices have increased from the
previous day’s trading.

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• Decline indicates the number of shares whose prices have fallen from the
previous day’s trading.

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• The net difference between the number of stocks advanced and declined during
the same period is the breadth of market. A cumulative index of net differences
measures the net breadth.
• Traders use market breadth indicators to assess the overall health of the
market/index. Market breadth indicators can sometimes provide early warnings
signs of a fall in the index, or forecast a coming rise in the index.
 Contd…
• Market breadth refers to how many stocks are participating in a given move in an index or
on a stock exchange.
• An index may be rising yet more than half the stocks in the index are falling because a
small number of stocks have such large gains that they drag the whole index higher.

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• Market breadth indicators can reveal this and warn traders that most stocks
are not actually performing well, even though the rising index makes it look like most

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stocks are doing well.
• An index is an average of the stocks in it. Volume may also be added into these indicator
calculations to provide additional insight into how stocks within an index are acting
overall.
• Market breadth attempts to find how much underlying strength or weakness there is in a
given stock index. By assessing the strength or weakness which isn't plainly visible by
looking at a chart of the index, technical traders gain insight into what the index may do
next.
 Contd…
• A large number of advancing stocks is a sign of bullish market sentiment and is used to
confirm a broad market uptrend.
• A large number of declining stocks shows sentiment is bearish, which would align with an

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index downtrend.
• When measuring market breadth, many indicators look at the number of advancing and
declining stocks, or the number of stocks that have created a recent 52-week high or low.

BH
• This data can provide information about whether an index uptrend or downtrend is likely to
continue.
• The tactic for most market breadth indicators is to monitor for confirmation and divergence.
Confirmation is when the indicator is moving favourably and the index is rising. Divergence is
when the index and indicator move in opposite directions. This warns that the index may
see a reversal soon.
 Contd…
• Unfortunately, market breadth indicators are poor timing signals. They may provide signals
way too early or may not forecast an index reversal that does occur.
KEY TAKEAWAYS:

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• Market breadth studies attempt to uncover strength or weakness in the movements of an
index that are not visible simply by looking at a chart of the index.

BH
• Market breadth indicators may forewarn of reversals. This occurs when the indicator
diverges with the stock index.
• There are multiple market breadth indicators based on the number of advancing and
declining stocks, volume, number of stocks reaching certain hurdles, and other metrics.
• Market breadth indicators are useful but not infallible. They sometimes predict index
reversals too early, and other times not at all.
 Pros of Breadth of the Market
• Breadth indicators help confirm the strength of a trend in a broader market index.
• Breadth indicators can often provide early warning signals of potential trend
reversals.

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• Breadth measures the degree of participation across the entire market, indicating
whether a rally or decline is broad-based or driven by a few stocks.

BH
• Breadth indicators help identify divergences between an index and the broader
market.
• In range-bound markets, breadth indicators help traders identify whether the
market is showing underlying strength or weakness.
 Cons of Breadth of the Market
• Breadth indicators can sometimes lag during strong trends, providing
confirmation signals after significant moves have already occurred.
• In highly volatile markets, breadth indicators can produce false signals.

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• Breadth indicators are less effective in analyzing illiquid or small markets, where
price movements of individual stocks can have a disproportionate impact on the

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indicator.
• Breadth indicators treat all stocks equally, regardless of their market
capitalization.
 Short Selling
• Short selling is the sale of a security that is not owned by the seller, or that
the seller has borrowed.
• Short selling is motivated by the belief that a security's price will decline, enabling it

U
to be bought back at a lower price to make a profit.
• Short selling may be prompted by speculation, or by the desire

BH
to hedge the downside risk of a long position in the same security or a related one.
• Since the risk of loss on a short sale is theoretically infinite, short selling should only
be used by experienced traders who are familiar with its risks.
BH
U
 Contd…
• To be a successful short seller, one must be aware of the clues that are offered both
technically and fundamentally.
• Technically, the short trader must be able to distinguish between a topping

U
formation and a change in trend. He or she must learn the types of formations which
indicate a short-term top or a long-term trend.

BH
• Fundamentally, the short-trader has to distinguish between a one-time news event
and the start of a series of negative events.
• By learning how both the technical and fundamentals work together, a trader will
gain confidence, which will enable him or her to comfortably short a market.
 Pros of Short Selling
• Short selling allows traders to make money during bear markets or periods of
market decline.
• Short selling can be used as a hedging strategy to protect long positions.

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• Short selling adds liquidity to the market and contributes to efficient price
discovery.

BH
• Short selling increases market liquidity by adding more trading volume to the
market.
• Short selling encourages active participation from investors with a variety of
perspectives.
 Cons of Short Selling
• Unlike buying stocks, where the maximum loss is limited to the initial investment,
short selling has unlimited loss potential.
• Short selling requires precise timing.

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• Short sellers must borrow shares to sell them, incurring borrowing costs (interest
and fees).

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• Short selling requires a margin account, which involves additional risks, such as
margin calls.
• In certain market conditions, regulators may impose short-selling bans or
restrictions on specific stocks, limiting traders’ ability to execute their strategies.
• Short selling can be mentally challenging because it involves betting against the
prevailing bullish sentiment in most markets.
 Odd Lot Trading
• Odd lot trades are trade orders made by investors that include less than 100 shares in the
transaction or are not a multiple of 100. These trade orders generally encompass
individual investors which the theory believes are less educated and influential in the

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market overall.
• This theory is based on the assumption that small individual investors are more likely to
enter odd lot trades than institutional investors. Therefore, according to this theory, if odd

BH
lot sales increase and small investors are selling a stock, it is a favourable time to buy.
Conversely, if odd lot purchases are up and small investors are purchasing a stock, it is
considered a good time to sell.
• The odd lot theory is a technical analysis hypothesis based on the assumption that the
small individual investor is usually wrong and that individual investors are more likely to
generate odd-lot sales.
 Assumptions of the Odd Lot Theory
[Link] analyzes odd lot trades falling below 100 shares.
[Link] believes that small investors are likely to trade more in odd lots than small
individual investors.

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[Link] assumes that small investors are generally wrong about trade timings; thus,
investors who follow this theory trade in contradiction to what the odd lot trades

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signal.
 Pros of Odd Lot Trading
• Odd lot trading allows retail investors to buy or sell smaller quantities of shares.
• Odd lot trading enables investors to diversify their portfolios by purchasing small
quantities of various stocks.
• Odd lot trading makes the stock market more accessible to investors with limited

U
capital.

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• Odd lot trading allows investors to enter positions gradually without committing a
large sum of money upfront.
• With odd lot trading, investors can own shares of high-priced stocks that they
may not be able to afford in round lots.
 Cons of Odd Lot Trading
• Odd lot trades often came with higher transaction costs or fees, as brokers
sometimes charged extra for handling odd lots.
• Odd lot orders may experience more slippage compared to round lot orders.
• Odd lot trades can face lower liquidity, as institutional traders and market makers

U
typically deal in round lots.
• Odd lot orders may not be filled as quickly as round lot orders, particularly in fast-

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moving markets or less liquid stocks.
• In some cases, a surge in odd lot trading can be interpreted as a sign of weak
market sentiment, with retail investors dominating trading activity.
• Odd lot trades are sometimes seen as noise in the market and can be used by
sophisticated traders to mislead retail investors.
• Odd lot trades generally have little impact on overall market movements
compared to larger, institutional-sized trades.
 Thank you
Suggested readings:
[Link] Chandra: Investment Analysis & Portfolio Management, McGraw-Hill

U
Education.
2.M. J. Pring: Technical analysis explained: The successful investor's guide to

BH
spotting investment trends and turning points, McGraw-Hill Education.
3.J. J. Murphy: Technical analysis of the financial markets: A comprehensive guide
to trading methods and applications, New York Institute of Finance.
[Link], Z., Kane, A, Marcus, A.J., and Mohanty, P. :Investments, Tata McGraw-Hill.
[Link] Punithavathy: Security Analysis and Portfolio Management, Himalaya
Publishing House Pvt. Ltd.
 Module VII: Technical Analysis

Lecture 04: Technical Indicators-II

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 Moving Average

BH
 Oscillators
 Relative Strength Indicator
 Rate of Change
 Elliot Wave Theory
 Moving Average
• The simple moving average (SMA) is a straightforward technical indicator that is
obtained by summing the recent data points in a given set and dividing the total
by the number of time periods.
• Moving average aids in predicting future short-term momentum, by identifying

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levels of support and resistance.
• A moving average chart is a constantly changing line that smoothes out past price

BH
data while also allowing the trader to identify support and resistance.
• In the fig. below you can notice how the price of the asset finds support at the
moving average when the trend is up, and how it acts as resistance when the
trend is down.
• Most traders will experiment with different time periods in their moving
averages so that they can find the one that works best for this specific task. A
five-day moving average of daily closing prices is calculated as follows:
BH
U
BH
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 Index and Stock Price Moving Average
• If index moving average line is above stock then the particular stock has bullish
trend.
• If index moving average line is below stock then the particular stock has bearish

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trend.
• If the moving average of stock penetrates the stock market index from above, it

BH
generates sell signal. Unfavorable market condition prevails for the particular
scrip.
• If the stock line pushes up through the market average, it is a buy signal.
 Stock Price and Stock Prices’ Moving Average
• The moving averages are used to study the movement of the market as well as
the individual security prices. These moving averages are used along with the
price of a stock. The stock prices may intersect the moving average at a particular

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point and give the buy and sell signal.
• The moving average analysis recommends buying a stock when:

BH
Stock prices line rises through the moving average line when graph of the moving
average line is flattening out.
Stock price line falls below the moving average line, which is rising.
Stock price line, which is above the moving average line, falls but begins to rise
again before reaching the moving average line.
 Contd…
• Moving average analysis recommends selling a stock when:
Stock price lines falls through the moving average line when graph of the moving
average line is flattening out.

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Stock prices line rise above the moving average line, which is falling.
Stock price line, which is below the moving average line, rises but begins to fall

BH
again before reaching the moving average line.
• The buy and sell signals initiated by a moving average trading system vary with the
length of time over which the moving average is calculated.
 Pros and Cons of Moving Averages
• Pros:
Easy to calculate and understand.
Effective in identifying trends and potential reversals.

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Useful for smoothing out price action and reducing noise.
• Cons:

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Lagging nature: Moving averages are based on past prices, making them slow
to react to sudden market changes.
Prone to whipsaws in shifting markets, where price frequently crosses back
and forth over the moving average.
 Oscillators
• An oscillator is a technical analysis indicator that varies over time within a band
(above and below a center-line, or between set levels). Oscillators are used to
discover short-term overbought or oversold conditions.
• Indicate market or scrip momentum

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• It shows the share price movement across a reference point from one extreme to

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another.
• Momentum is simply the rate of change – the speed or slope at which a stock or
commodity ascends or declines.
• The momentum indicates:
Overbought & oversold conditions of the scrip or the market.
Signaling the possible trend reversal
Rise or decline in the momentum.
 Key Concepts of Oscillators
• Range-Bound Indicators
Oscillators generally move within a specific range, such as 0 to 100 or -100 to +100.
They help determine when an asset is overbought (upper range) or oversold (lower
range).

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• Overbought and Oversold Conditions
Overbought: When an oscillator reaches its upper limit, it indicates that an asset

BH
may be overbought, signaling a potential sell opportunity.
Oversold: When it reaches its lower limit, it suggests the asset may be oversold,
indicating a potential buy opportunity.
• Momentum Analysis
Oscillators are momentum-based indicators that reflect the speed or strength of
price movements.
They are effective in identifying potential trend reversals and understanding the
underlying momentum of a trend.
 Pros and Cons of Oscillators
• Pros:
Excellent for identifying potential turning points in range-bound or
consolidating markets.

U
Useful in assessing the strength or weakness of a trend.
Can help identify divergences, which may signal trend reversals.

BH
• Cons:
May give false signals in strong, trending markets.
Can be prone to "sticking" at extreme levels during strong uptrends or
downtrends.
Interpretation can vary based on the settings and timeframes used.
 Relative Strength Index (RSI)
• Developed by Wells Wilder
• It is an oscillator used to identify the inherent technical strength and weakness of a
particular scrip or market.

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• RSI is calculated for 5, 7, 9 and 14 days.
• The broad rule is, if the RSI crosses 70 there may be downturn and it is time to sell.

BH
If RSI falls below 30 it is time to pick up the scrip.
• If the share price is falling and RSI is rising, a divergence is said to have occurred.
Divergence indicates the turning point of the market.
• If RSI is rising in the overbought zone, it would indicate the downfall of the price
and clear signal of sell.
 Contd….

U
BH
 Interpretation of the RSI
• RSI Above 70: When the RSI exceeds 70, the asset is considered overbought, suggesting
that it may be due for a downward correction or pullback. It can indicate that the asset
has been rising too quickly and may be losing momentum.
• RSI Below 30: When the RSI falls below 30, the asset is considered oversold, suggesting

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that it may be due for a price bounce or upward correction. It indicates that the asset has
been declining too quickly and may be ready to recover.

BH
• RSI Near 50: An RSI around 50 suggests a neutral condition, often seen in sideways
markets or during consolidations. It can indicate the lack of a strong trend in either
direction.
• Divergence with Price
Bullish Divergence: When the RSI rises while the price continues to fall, signaling
potential upside momentum.
Bearish Divergence: When the RSI falls while the price continues to rise, indicating
potential downside momentum.
 Pros and Cons of RSI
• Pros:
Easy to understand and widely used.
Effective in identifying potential reversal points.

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Useful in both trending and range-bound markets.
• Cons:

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Prone to false signals during strong trends, where it can remain overbought
or oversold for extended periods.
Works best when combined with other indicators to confirm signals.
 Rate of Change
• The Rate of Change (ROC) is a momentum-based technical indicator that
measures the percentage change in price between the current price and the
price a certain number of periods ago.

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• The ROC indicator is plotted against zero, with the indicator moving upwards into
positive territory if price changes are to the upside, and moving into negative

BH
territory if price changes are to the downside.
• The indicator can be used to spot divergences, overbought and oversold
conditions.
 Formula

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BH
Current Price: The price of the asset at the most recent period.
Price n Periods Ago: The price of the asset n periods before the current period.
n: The number of periods over which the ROC is calculated (e.g., 5 days, 10 days,
etc.).
 Interpreting the Rate of Change
• Positive ROC: Indicates a rising momentum in the price. A high positive ROC
suggests a strong uptrend.
• Negative ROC: Indicates a falling momentum in the price. A low or very negative

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ROC suggests a strong downtrend.
• Zero ROC: Occurs when the current price is the same as the price n periods ago,

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indicating no change.
• Divergence: When the price is moving in one direction while the ROC moves in
the opposite direction, it can signal a potential reversal.
 Pros and Cons of ROC
• Pros:
Simple and easy to understand.
Provides clear signals of trend direction and momentum strength.

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Useful in both short-term and long-term analysis.
• Cons:

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Can produce false signals in choppy or sideways markets.
Works best in trending markets, making it less reliable during consolidations.
 Elliott Wave Theory
• Elliott Wave theory is an important method in the technical analysis developed by
Ralph Nelson Elliott to describe market price movements.
• According to the Elliott Wave theory, stock prices move in recurring, up and
down, patterns called waves ( fractal in nature) that are created by investor

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sentiment or psychology.
• The theory says that there are two types of waves – motive waves (also called

BH
impulse waves) and corrective waves. Motive or impulse waves are movements
that take place in the direction of a trend, while corrective waves occur in the
opposite direction of the ongoing trend.
 Wave Patterns
• Elliott identified five-wave patterns in
trending markets and three-wave
patterns in corrective markets.

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• Impulsive waves (5-wave structure)
move in the direction of the main trend.
• Waves 1, 3, and 5 are impulsive

BH
waves moving with the trend.
• Waves 2 and 4 are corrective
waves, moving against the trend.
• Corrective waves (3-wave structure,
labeled as A-B-C) move against the
trend.
 Pros and Cons of Elliott Wave Theory
• Pros:
Offers a structured way to analyze market behavior.
Helps traders align with the underlying market trend.

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Fractal nature allows for analysis across multiple time frames.
• Cons:

BH
Subjective- wave counts can differ among traders.
Complex and may require significant experience to apply effectively.
Works better in hindsight, making real-time application challenging.
 Thank you
Suggested readings:
[Link] Chandra: Investment Analysis & Portfolio Management, McGraw-Hill

U
Education.
2.M. J. Pring: Technical analysis explained: The successful investor's guide to

BH
spotting investment trends and turning points, McGraw-Hill Education.
3.J. J. Murphy: Technical analysis of the financial markets: A comprehensive guide
to trading methods and applications, New York Institute of Finance.
[Link], Z., Kane, A, Marcus, A.J., and Mohanty, P. :Investments, Tata McGraw-Hill.
[Link] Punithavathy: Security Analysis and Portfolio Management, Himalaya
Publishing House Pvt. Ltd.
 Module VII: Technical Analysis

Lecture 05: Pricing Patterns

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• Channel

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• Wedge
• Head & shoulders
• Double top & bottom
 Introduction
• Pricing patterns in technical analysis represent specific formations on a price
chart that suggest future price movements. They are categorized into two main
types: reversal patterns and continuation patterns. These patterns are used by

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traders to identify potential entry and exit points and to predict the likely
direction of a trend.

BH
 Channel chart
• A channel chart pattern is a foundational concept in technical analysis used by
traders to interpret price movements in financial markets.
• It consists of two parallel trend lines that enclose price action within a defined
range, reflecting the market’s trend and volatility.

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• The lower trend line, termed the support line, indicates the level at which buying
interest typically emerges, preventing further downward price movement.
Conversely, the upper trend line, known as the resistance line, signifies the level

BH
at which selling pressure often intensifies, hindering upward price progression.
• The space between these two trend lines forms what is commonly referred to as
the “channel,” wherein prices oscillate as traders assess market conditions and
sentiment.
• Channel chart patterns can exhibit various orientations, including ascending
channels, descending channels, and horizontal channels, each offering unique
insights into market trends and potential trading opportunities.
 Charts

U
BH
 Formation of Channel
• The formation of a channel chart pattern occurs as a result of consistent price
movements within a specific range over time.
• Typically, channels develop during trending market conditions, whether upward
or downward. In an uptrend, an ascending channel takes shape, characterized by

U
a rising support line and a parallel resistance line. This pattern reflects the
market’s tendency to make higher highs and higher lows, indicating bullish
sentiment among traders.

BH
• Conversely, in a downtrend, a descending channel emerges, featuring a declining
support line and a parallel resistance line. Here, lower highs and lower lows
signify bearish momentum, with sellers dominating the market.
• The formation of these channels highlights the equilibrium between buyers and
sellers as prices fluctuate within a defined range.
• Traders closely monitor channel formations to gauge market sentiment, identify
potential trend reversals, and execute strategic trading decisions based on the
prevailing price dynamics.
 Wedge
• A wedge pattern is a price pattern identified by converging trend lines on a price
chart. The wedge pattern is frequently seen in traded assets like stocks, bonds,
futures, etc. The characteristic feature of the pattern is the narrowing price range
between two trend lines that are converging towards each other, creating a

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wedge shape.
• A contracting price range paired with either an upward price trend (known as a

BH
rising wedge) or a downward price trend (known as a falling wedge) defines the
pattern.
• The wedge pattern has three common elements observed in each scenario:
firstly, the trendlines that are converging towards each other; secondly, the
volume tends to decline as the price progresses through the pattern; and finally,
there is a breakout from one of the trend lines. A rising or falling slant heading in
the same direction defines this pattern.
BH
U
 Head and Shoulders
• It is a distorted drawing of a human form, with a large lump (for head) in the
middle of two smaller humps (for shoulders).
• This is perhaps the single most important pattern to indicate a reversal of price

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trend.
• The neckline of the pattern is formed by joining points where the head and the

BH
shoulders meet. The price movement after the formation of the second shoulder is
crucial.
• If the price goes below the neckline, then a drop in price is indicated, with the drop
expected to be equal to the distance between the top of the head and the
neckline.
BH
U
 Contd….

(i) Head and Shoulder Top Pattern: This has a left shoulder, a head and a right
shoulder. Such formation represents bearish development. If the price falls
below the neck line (line drawn tangentially to the left and right shoulders) a

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price decline is expected. Hence, it’s a signal to sell.
(ii) Inverse Head and Shoulder Pattern: As the name indicates this formation, it is

BH
an inverse of head and shoulder top formation. Hence it reflects a bullish
development. The price rise to above the neck line suggests price rise is
imminent and a signal to purchase.
 Charts

U
BH
 Double Top & Double Bottom
• The Double Top and Double Bottom are classic reversal patterns used in
technical analysis. They indicate the potential for a reversal in the prevailing
trend, signaling traders when the current trend might come to an end and

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reverse direction.
• The Double Top signals a bearish reversal after an uptrend, while the Double

BH
Bottom signals a bullish reversal after a downtrend. When combined with other
technical analysis tools (like volume analysis), these patterns can offer high-
probability trading opportunities.
 Contd….
• Double Bottom Pattern (Bullish Reversal): The Double Bottom is a bullish
reversal pattern that forms after an extended downtrend. It resembles the shape
of a "W" on the price chart and indicates that selling pressure is weakening and
the price is likely to reverse upwards.

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• Characteristics:
• Two troughs should be roughly equal in depth, though small deviations are

BH
acceptable.
• Volume tends to be higher on the first trough and lower on the second,
indicating weakening selling pressure.
• The pattern is considered complete when the price breaks above the neckline
with increased volume, confirming the bullish trend.
 Contd….
• Double Top Pattern (Bearish Reversal): The Double Top is a bearish reversal
pattern that forms after an extended uptrend. It resembles the shape of an "M"
on the price chart and indicates that buying pressure is weakening and the price

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is likely to reverse downwards.
• Characteristics:

BH
• Two peaks should be roughly equal in height, although minor variations are
acceptable.
• Volume tends to be higher on the first peak and lower on the second,
indicating weakening buying pressure.
• The pattern is considered complete when the price breaks below the neckline
with increased volume, confirming the bearish trend.
 Charts

U
BH
 Triple Top & Triple Bottom
• The Triple Top and Triple Bottom patterns are classic reversal patterns in
technical analysis. They are extensions of the Double Top and Double Bottom
patterns, offering stronger confirmation of trend reversal as they involve three

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distinct price tests at similar levels.
• The Triple Top signals a bearish reversal, while the Triple Bottom signals a bullish

BH
reversal. These patterns, especially when confirmed by volume, can be powerful
tools in identifying strong turning points in the market and help traders make
more confident entry and exit decisions.
 Contd….
• Triple Top Pattern (Bearish Reversal) : The Triple Top is a bearish reversal pattern
that occurs after an extended uptrend. It consists of three peaks that occur near
the same price level, indicating that buyers are unable to push the price higher
after multiple attempts. This pattern suggests that selling pressure is building,

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and a reversal to the downside is likely.
• Characteristics:

BH
• The three peaks should be roughly equal in height, with minor variations
being acceptable.
• The neckline (support level) should also be well-defined, with the price
touching it after each peak.
• Volume typically decreases with each peak, signaling weakening buying
pressure.
 Contd….

• Triple Bottom Pattern (Bullish Reversal): The Triple Bottom is a bullish reversal
pattern that occurs after an extended downtrend. It consists of three troughs
(lows) that occur near the same price level, indicating that sellers are unable to

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push the price lower after multiple attempts. This pattern suggests that buying
pressure is building, and a reversal to the upside is likely.

BH
• Characteristics:
• The three troughs should be roughly equal in depth, with minor variations
being acceptable.
• The neckline (resistance level) should be well-defined, with the price
bouncing off it after each trough.
• Volume typically decreases with each trough, signaling weakening selling
pressure.
 Charts

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BH
 U
Evaluation of Technical Analysis

BH
 Arguments in Support
• Under the influence of crowd psychology, trends persist for quite some time.
Tools of technical analysis that help in identifying these trends early are helpful
aids in investment decision making.
• Shifts in demand and supply are gradual rather than instantaneous. Technical

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analysis helps in detecting these shifts rather early and hence provides clues to
future price movements.

BH
• Fundamental information about a company is absorbed and assimilated by the
market over a period of time. Hence, the price movement tends to continue in
more or less the same direction till the information is fully assimilated in the
stock price.
• Charts provide a picture of what has happened in the past and hence give a sense
of volatility that can be expected from the stock. Further, the information on
trading volume which is ordinarily provided at the bottom of a bar chart gives a
fair idea of the extent of public interest in the stock.
 Arguments against
• Most technical analysts are not able to offer convincing explanations for the tools
employed by them.
• Empirical evidence in support of the random-walk hypothesis casts its shadow
over the usefulness of technical analysis.

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• By the time an uptrend or downtrend may have been signalled by technical
analysis, it may already
J. J. have taken place.

BH
• Ultimately, technical analysis must be a self-defeating proposition. As more and
more people employ it, the value of such analysis tends to decline.
• The numerous claims that have been made for different chart patterns are simply
untested assertions.
• There is a great deal of ambiguity in the identification of configurations as well as
trend lines and channels on the charts. The same chart can be interpreted
differently.
 Thank you
Suggested readings:
[Link] Chandra: Investment Analysis & Portfolio Management, McGraw-Hill

U
Education.
2.M. J. Pring: Technical analysis explained: The successful investor's guide to

BH
spotting investment trends and turning points, McGraw-Hill Education.
3.J. J. Murphy: Technical analysis of the financial markets: A comprehensive guide
to trading methods and applications, New York Institute of Finance.
[Link], Z., Kane, A, Marcus, A.J., and Mohanty, P. :Investments, Tata McGraw-Hill.
[Link] Punithavathy: Security Analysis and Portfolio Management, Himalaya
Publishing House Pvt. Ltd.