Fundamental Analysis & Technical Analysis

What is technical analysis?

There are two methods used to make investment and to analyze the securities that are:

1)       Fundamental analysis.

2)       Technical analysis.

Technical analysis is making predictions about future movements of financial price based on survey of the prices in the past. There is no perfect forecasting in technical analysis like weather analysis. Technical analysis, in fact helps investors to anticipate what is likely to happen to prices over the time. In technical analysis a wide variety of charts are used to show the prices. It is applied on stocks, goods sold and indices where all the prices are affected by demand and supply force.

Open, high, low, or close for a given security is the combination which is referred in price. In addition, some technical analysts include volume or open interest figures with their study of price action. The technical analysis advancement towards investment emerges out with a concept that that prices move according to the attitudes of investors towards the market changes like economic, financial and political.

The reality of technical analysis lies in its flexibility. Since the rules of technical analysis are universally applicable, each of the analysis steps above can be performed using the same theoretical background. You don't need an economics degree to analyze a market index chart. The technical principles of support, resistance, trading range and other aspects can be applied to any chart. As this may sound very easy, technical analysis is by no means easy.

Success requires serious study, hard dedication and an open mind. It is sometimes also known as market analysis because sometimes the market records are being utilized to determine the demand and supply of the shares available in a particular stock. In fundamental analysis the dividend discount model and the multiplier model develop an estimate of a stock's basic value, which is then compared to the market price. As the prices of the stocks shift from their old prices to new price they move in a specific trend. In technical analysis the focus is upon the market information or record as a whole, whereas in fundamental analysis the focus is upon few factors like economic and political factors.

In technical analysis the importance is given to the switching and adjustment of prices of stocks from old ones to the new. Technicians focus upon factors like market sentiment and momentum. They use technical indicators and graphs.

Price and volume are very important for the technical analysts. Many technicians use the open, high, low and close when analyzing the price action of a security. There is information to be collected from each bit of information.

Specialized or Fundamental analysis:

Specialized analysis is a stand out amongst the most noteworthy devices accessible for gauging monetary business conduct. It has been ended up being a viable instrument for speculators and is continually getting to be more acknowledged by business members.

Specialized markers are instruments utilized by merchants and speculators determining future business developments; it is carried out by dividing the moves of the value patterns previously.

A graph is an alternate critical and an adjoined piece of specialized investigation. Graphs are designed to foresee the business sector patterns. On the other hand the best possible use of outlines help the merchants and speculators to choose the ideal time so that they can get enter into the stock exchange

The Dow Theory:

The most seasoned and best known hypothesis of specialized investigation is the Dow hypothesis initially created in the late 1800s by the supervisor of the divider road diary Charles. H. Dow. The main purpose of this theory was to portray the past value developments. The Dow hypothesis was got prominent in 1920’s and 1930’s. The hypothesis is focused around the presence of three sorts of value developments which are as follows:

1)      Primary moves, a broad market development that keeps on going several years.

2)      Secondary moves, happening inside the primary moves, which symbolizes disruption lasting for a number of weeks or months

3)      Day to day moves, happening haphazardly around the primary and secondary moves.

Trends of the Market:

Following are considered to be as the major trends of the market:

1)      The Primary Pattern

2)      The Secondary Pattern

3)      The Minor Pattern

The Primary Trend:

In Dow hypothesis, the primary pattern is the real pattern of the business sector, which makes it the most critical one to focus. This is on account of the overriding pattern is the particular case that influences the developments in stock costs. The primary pattern will likewise affect the secondary and minor patterns inside the business.

The Primary pattern (contrasted with the tides) is the biggest pattern, which goes on for a year. At the point when there is a wave of climbing costs, we have a climbing (bull) market, when costs are declining we have a falling (bear) market. In this way, the Primary pattern can be either climbing (bullish) or falling (bearish).

The Secondary Pattern:

The Secondary pattern (contrasted with the waves in the tide) is a middle of the road trend. This pattern speaks to rectifications in the primary pattern, which keeps going from three weeks to three months, following from one-third to two-thirds of the past pattern development.

The Minor Pattern:

The final one of the three pattern sorts in Dow hypothesis is the minor pattern, which is characterized as a market movement continuing less than three weeks. The minor pattern is for the most part the restorative moves inside a secondary move, or those moves that go against the course of the Secondary pattern.

Key Points on Technical Analysis

v  The main focus of technical analysis is on the internal factors and their analysis of the movements in the aggregate market, industry average or stock. On the other hand the main focus of the fundamental analysis is on the factors which are external to the market for example economic and political factors.

v  The main focus of the technical analysis is to recognize the changes which are taking place in the direction of the stock prices. The analysis of the trends and changes in the directions of stock price can be studied through the action of price movements and trading volume across the time.

v  The main task of technicians is to assess the overall situation related to the stocks, this can be done through the analysis of technical indicators for example breadth-of-market data, market sentiment, momentum and other indicators.