Price Action

Technical Analysis: Fundamental Vs. Technical Analysis
By Investopedia Staff
By Cory Janssen, Chad Langager and Casey Murphy
Source :
Investopedia https://www.investopedia.com

Technical analysis and fundamental analysis are the two main schools of thought in the financial markets. As we've mentioned, technical analysis looks at the price movement of a security and uses this data to predict its future price movements. Fundamental analysis, on the other hand, looks at economic factors, known as fundamentals. Let's get into the details of how these two approaches differ, the criticisms against technical analysis and how technical and fundamental analysis can be used together to analyze securities.

The Differences
Charts vs. Financial Statements
At the most basic level, a technical analyst approaches a security from the charts, while a fundamental analyst starts with the financial statements. (For further reading, see Introduction To Fundamental Analysis and Advanced Financial Statement Analysis.)

By looking at the balance sheet, cash flow statement and income statement, a fundamental analyst tries to determine a company's value. In financial terms, an analyst attempts to measure a company's intrinsic value. In this approach, investment decisions are fairly easy to make - if the price of a stock trades below its intrinsic value, it's a good investment. Although this is an oversimplification (fundamental analysis goes beyond just the financial statements) for the purposes of this tutorial, this simple tenet holds true. Technical traders, on the other hand, believe there is no reason to analyze a company's fundamentals because these are all accounted for in the stock's price. Technicians believe that all the information they need about a stock can be found in its charts.

Time Horizon Fundamental analysis takes a relatively long-term approach to analyzing the market compared to technical analysis. While technical analysis can be used on a timeframe of weeks, days or even minutes, fundamental analysis often looks at data over a number of years.

The different timeframes that these two approaches use is a result of the nature of the investing style to which they each adhere. It can take a long time for a company's value to be reflected in the market, so when a fundamental analyst estimates intrinsic value, a gain is not realized until the stock's market price rises to its "correct" value. This type of investing is called value investing and assumes that the short-term market is wrong, but that the price of a particular stock will correct itself over the long run. This "long run" can represent a timeframe of as long as several years, in some cases. (For more insight, read Warren Buffett: How He Does It and What Is Warren Buffett's Investing Style?)

Furthermore, the numbers that a fundamentalist analyzes are only released over long periods of time. Financial statements are filed quarterly and changes in earnings per share don't emerge on a daily basis like price and volume information. Also remember that fundamentals are the actual characteristics of a business. New management can't implement sweeping changes overnight and it takes time to create new products, marketing campaigns, supply chains, etc. Part of the reason that fundamental analysts use a long-term timeframe, therefore, is because the data they use to analyze a stock is generated much more slowly than the price and volume data used by technical analysts.

Source : Investopedia and other internet sources

page 1

 

Trading Versus Investing

Not only is technical analysis more short term in nature than fundamental analysis, but the goals of a purchase (or sale) of a stock are usually different for each approach. In general, technical analysis is used for a trade, whereas fundamental analysis is used to make an investment. Investors buy assets they believe can increase in value, while traders buy assets they believe they can sell to somebody else at a greater price. The line between a trade and an investment can be blurry, but it does characterize a difference between the two schools.

The Critics Some critics see technical analysis as a form of black magic. Don't be surprised to see them question the validity of the discipline to the point where they mock its supporters. In fact, technical analysis has only recently begun to enjoy some mainstream credibility. While most analysts on Wall Street focus on the fundamental side, just about any major brokerage now employs technical analysts as well.

Much of the criticism of technical analysis has its roots in academic theory - specifically the efficient market hypothesis (EMH). This theory says that the market's price is always the correct one - any past trading information is already reflected in the price of the stock and, therefore, any analysis to find undervalued securities is useless.

There are three versions of EMH. In the first, called weak form efficiency, all past price information is already included in the current price. According to weak form efficiency, technical analysis can't predict future movements because all past information has already been accounted for and, therefore, analyzing the stock's past price movements will provide no insight into its future movements. In the second, semi-strong form efficiency, fundamental analysis is also claimed to be of little use in finding investment opportunities. The third is strong form efficiency, which states that all information in the market is accounted for in a stock's price and neither technical nor fundamental analysis can provide investors with an edge. The vast majority of academics believe in at least the weak version of EMH, therefore, from their point of view, if technical analysis works, market efficiency will be called into question. (For more insight, read What Is Market Efficiency? and Working Through The Efficient Market Hypothesis.)

There is no right answer as to who is correct. There are arguments to be made on both sides and, therefore, it's up to you to do the homework and determine your own philosophy.
Can They Co-Exist? Although technical analysis and fundamental analysis are seen by many as polar opposites - the oil and water of investing - many market participants have experienced great success by combining the two. For example, some fundamental analysts use technical analysis techniques to figure out the best time to enter into an undervalued security. Oftentimes, this situation occurs when the security is severely oversold. By timing entry into a security, the gains on the investment can be greatly improved.


Alternatively, some technical traders might look at fundamentals to add strength to a technical signal. For example, if a sell signal is given through technical patterns and indicators, a technical trader might look to reaffirm his or her decision by looking at some key fundamental data. Oftentimes, having both the fundamentals and technicals on your side can provide the best-case scenario for a trade.

While mixing some of the components of technical and fundamental analysis is not well received by the most devoted groups in each school, there are certainly benefits to at least understanding both schools of thought.

DEFINITION of 'Price Action'
The movement of a security's price. Price action is encompassed in technical and chart pattern analysis, which attempt to find order in the sometimes seemingly random movement of price. Swings (high and low), tests of resistance and consolidation are some examples of price action.

The candlestick and price bar are important tools for analyzing price action, since they help traders visualize of price movement. Candlestick patterns such as the Harami, engulfing pattern and cross are all examples of visually interpreted price action.


BREAKING DOWN 'Price Action'
No two people will analyze every bit of price action the same way, and that is why a lot of traders find the concept of price action so elusive. Quite literally, price action is everything that a security's price does, and just like every other facet of analysis, it is purely subjective.

Price Action is a form of technical analysis that focuses solely on past prices that have traded in the market. This article contains a simple, and complex method for new traders to begin learning price action.

In my view after price change only indicator reacts , thats why indicators are follow price action , so indicator is always slow ....

Chart Indicates market situation it is in a Bearish or Bullish or in a sideways


Indicator Based Chart
Ex :


Pure Price Action Chart
Ex :


In price action we have to study our own analysis always ..it is some difficult process

In Indicator based chart , in that chart indicator indicates price fluctuations and behavior
so indicator simplify our work , but Indicators , parameters and time frame settings are important in this model ....

ALL METHODS ARE GOOD ...but ultimately sucess will tell our trading or investment quality

Different types of Technical Analysis Charts....

1.Line Charts : (Investopedia )


2.Candle Stick Charts :



3.Heikin-Ashi :


4.Bar Chart :


5.Kagi Chart :



6.Point and Figure chart : (Investopedia)


If Investors or Traders both they may get benefited from TA ....

Technical Analysis is an Art and also a Science ....

Source : Investopedia and other Internet sources

ALL THE BEST

page 2

 

"The Problems With Fundamental Analysis"

Neil A Costa

Fundamental analysis has been a well-known method of selecting stocks for many decades.

Fundamental analysis is a technique used to identify stocks that are 'undervalued' by the market, that is, they are selling at a price that is lower than the stock's intrinsic value at the time. Fundamental analysts assume that buyers will be attracted by the stock's 'cheap' price, and will collectively purchase the stock in sufficient numbers to cause its price to rise.

Fundamental analysis is also used to identify so-called 'growth' stocks - stocks that have the potential to increase in value over time due to increasing earnings. BHP was, for a long time, an excellent growth stock in Australia. IBM was a classic growth stock in the United States.

To determine whether a stock is undervalued, or is a growth stock, a fundamental analyst examines numerous company statistics and other factors such as the effectiveness of the management, in order to make an assessment of the intrinsic value of the company. The relative value of the company to others in its industry, and the prevailing economic conditions, are also considered.

• Liquidity patterns, such as current assets to current liabilities./li>
• Working capital management efficiency, such as an analysis of the value of stock held by the company, measured in days./li>
• Financial structures, such as the amount of gearing, balance sheet strength, and the company's debt structure./li>
• Profitability ratios, such as rate of return, return on assets, and the gearing of the company's earnings./li>
• Market performance ratios, such as dividends per share, dividend cover, dividend yield, earnings per share, discounted cash flow, the price-to-sales ratio and the price/earnings ratio./li>
• … and many others./li>

Fundamental analysts obtain the data they require from company reports, announcements, financial Internet sites and from company web sites.

The 'Value' Approach

The 'value' approach to fundamental analysis was first outlined by Benjamin Graham and David Dodd in their classic book Security Analysis, first published in 1934. This approach is popular with investors such as Warren Buffett who is one of the most successful long-term investors in the world today.

The Problems With Fundamental Analysis

Fundamental analysis, when used in isolation, has a number of serious drawbacks:

There are an infinite number of factors that can affect the earnings of a company, and its stock price, over time. These can include economic, political and social factors, in addition to the various company statistics mentioned earlier.

• The data used can be at least six months out of date.
• Reported earnings can be dubious - due to creative accounting. For example, property valuations; value of mastheads; deferring the reporting of product development costs.
• It is difficult to give appropriate weightings to the factors.
• The results obtained from this analysis are only valid for a limited period of time after the analysis has been performed. Forecasts are often downgraded - hence the saying "if you are going to forecast, forecast often".
• The rules change to suit the game.
  • In the early 1970s and 1980s price/earnings multiples of 80 or 90 were considered acceptable by some for 'blue chip' stocks in the United States.
  • In the 1980s in the United States some biotechnology stocks sold at '50 times sales'. The companies had no earnings and paid no dividend. The new yardstick to value these became 'products in the pipeline'. By the late 1980s most had lost three-quarters of their stock price!
• It assumes that the analyst is competent. In fact, the best analysts in stock brokers' offices end up on the sales desk or in portfolio management where the salaries are much higher.
• A fundamental analyst assumes that other fundamental analysts will form the same view about the company and buy the stock, thus restoring its value and returning the trader or investor a capital gain. In practice, an undervalued company's stock price can stay at approximately the same level (or decline) for years!
• It assumes that news travels instantly - but will everyone act on it instantly?
• It ignores the influence of random events such as oil spills, product defects being exposed, acts of God and so on.
• It assumes that there is no monopolistic power over markets.
• Even when fundamental analysis reveals an undervalued company, or a stock with high growth prospects, it does not tell us anything about the timing of the purchase of the stock. In other words, we may have discovered a grossly undervalued stock whose price has been falling for some time, and may well continue falling!
• Fundamental analysis sounds plausible - even scientific!
• Fundamental analysis has appeal, as traders and investors feel more secure knowing why a stock should rise.

Source : https://www.marketmasters.com.au/39.0.html

 

Technical Analysis

There are many different factors that can cause a stock's price to rise or fall - sometimes quite dramatically. These include interests rates, economic data, commodity prices, exchange rates, what is happening in other markets, company news and rumours, dividend payments, the activities of futures and options traders, the activity of funds and the impact of government policies. It is almost impossible to try and identify, and give an appropriate weighting to such variables, in any meaningful manner. Even if you are successful, your analysis will be out-of-date after just one day. For this reason technical analysts focus on the stock price itself, which is all that really counts. Trying to second-guess why a stock rises is a frustrating exercise that is of no value.

Technical analysis uses price, volume, market sentiment and cycles to predict future price movements. It is not concerned with the financial position of a company. Technical analysis assumes that the chart reflects all known information that could affect the price of a company. As a consequence, there is no need for technical analysts to concern themselves with economic or political issues, or even with market fundamentals.

The Critics of Technical Analysis
Many critics of technical analysis:

• Know very little, if anything, about it.
• Cite outdated studies
  • For example, some like to make the point that a double top can form by plotting the outcomes of tossing a coin. It can - so?
  • That chart patterns do not work.
• Cite ridiculous, unproven techniques used by some lunatics and suggest that these techniques are part of technical analysis.
• Cite studies where one technical indicator is used in isolation - yet the technique would not be used in that manner by a competent technical analyst or trader.
• Fail, conveniently, to take into account studies in favour of technical analysis

Source :https://www.marketmasters.com.au/39.0.html

 

WHAT IS TECHNICAL ANALYSIS?

Technical Analysis is the study of price movement of any type of security pictured into a graph or chart, for the purpose of spotting & following price trends.


Sample Graph 1: The Stock Market Trend
THE STUDY OF PRICE

Price Discounts Everything

• The market prices tells you everything you need to know about a stock market expectations.

Price Movement Trends

• An object in motion tends to stay in motion; while an object at the rest tends to stay at rest

History Repeats Itself

• People will tend to react in similar fashion to certain kinds of stimuli, grooming repetitive patterns of price activity.
• LOOKING AT PRICES THRU GRAPHS
  
  
  Sample Bar Charts
  
  
  OPEN – the first price a stock trades at
  
  HIGH – the highest price it reaches in a trading day
  
  LOW – the lowest price is tags during a trading day
  
  CLOSE – the final trading price of the day
  
  LOOKING AT PRICES THRU GRAPHS
  
  
  
  
  
  Advantage of looking at graphs/charts:
  
  • See and analyze information fast
  • Spot trend movements and changes
  • Scope out and study many possible instruments (indices, stocks bonds, commodities, currencies..)
  STUDYING VOLUME WITH GRAPHS
  
  Volume – measures the number shares or value of those shares that trade in a day
  
  • It can confirm your suspicions about a trends forcefulness
  • Volume usually expands along with a trends
  • It drowns away when trends are weak and falling
  
  
  PART 2: SPOTTING AND FOLLOWING TRENDS
  
  SUPPORT AND RESISTANCE
  
  Support is a price point underneath a market that shows heaviness in buying sufficient enough to prevent prices from falling down
  
  Resistance is a price point above a market that shows heaviness in a selling sufficient enough to prevent prices from rising up
  
  
  
  IDENTIFYING TRENDS
  
  Trends are durable swings in market conditions; they show the general direction of a securities’ price overtime
  
  
  
  TRENDLINES are guideines that follow a trend that connect several areas of support or resistance to project buying or selling action over time
  
  
  
  TRENDLINE PERIODS
  
  State your time period:
  
  Short Term: From 3-6 months
  
  Medium Term: 6-9 months
  
  Long Term: 9+ months
  
  TRENDLINES IN ACTION
  
  
  
  Strategy:
  
  • Buy closer to pullbacks to support of an up trendline or a breach of a down trendline
  • Hold as long as your trendlines do not break
  • Sell when your up trendline breaks
  Whoaaa!!!…I hope this will make sense to all that will be reading this post…OK, for the meantime I would like to pause for a break since my daughter is hurrying to go to a mall where she will play in the children zone since it is a weekend and we have this schedule reserved for us to bond together. I will be posting the parts 3 & 4 on this Technical Trading Analysis next weekend. But before I will end this let me share to you this quote:
  
  
  Source : https://myinvestmentguide.wordpress.com/2014/09/27/col-a-primer-into-technical-analysis-part-1-2/

 

Candlestick Charting: What Is It?
By Investopedia Staff AAA |

The candlestick techniques we use today originated in the style of technical charting used by the Japanese for over 100 years before the West developed the bar and point-and-figure analysis systems. In the 1700s, a Japanese man named Homma, a trader in the futures market, discovered that, although there was a link between price and the supply and demand of rice, the markets were strongly influenced by the emotions of traders. He understood that when emotions played into the equation, a vast difference between the value and the price of rice occurred. This difference between the value and the price is as applicable to stocks today as it was to rice in Japan centuries ago. The principles established by Homma are the basis for the candlestick chart analysis, which is used to measure market emotions surrounding a stock.

This charting technique has become very popular among traders. One reason is that the charts reflect only short-term outlooks, sometimes lasting less than eight to 10 trading sessions. Candlestick charting is a very complex and sometimes difficult system to understand. Here we get things started by looking at what a candlestick pattern is and what it can tell you about a stock.

Candlestick Components
When first looking at a candlestick chart, the student of the more common bar charts may be confused; however, just like a bar chart, the daily candlestick line contains the market's open, high, low and close of a specific day. Now this is where the system takes on a whole new look: the candlestick has a wide part, which is called the "real body". This real body represents the range between the open and close of that day's trading. When the real body is filled in or black, it means the close was lower than the open. If the real body is empty, it means the opposite: the close was higher than the open.


Figure 1: A candlestick
Just above and below the real body are the "shadows". Chartists have always thought of these as the wicks of the candle, and it is the shadows that show the high and low prices of that day's trading. If the upper shadow on the filled-in body is short, it indicates that the open that day was closer to the high of the day. A short upper shadow on a white or unfilled body dictates that the close was near the high. The relationship between the day's open, high, low and close determines the look of the daily candlestick. Real bodies can be either long or short and either black or white. Shadows can also be either long or short.

Comparing Candlestick to Bar Charts
A big difference between the bar charts common in North America and the Japanese candlestick line is the relationship between opening and closing prices. We place more emphasis on the progression of today's closing price from yesterday's close. In Japan, chartists are more interested in the relationship between the closing price and the opening price of the same trading day.


In the two charts below we are showing the exact same daily charts of IBM to illustrate the difference between the bar chart and the candlestick chart. In both charts you can see the overall trend of the stock price; however, you can see how much easier looking at the change in body color of the candlestick chart is for interpreting the day-to-day sentiment.

Basic Candlestick Patterns
In the chart below of EBAY, you see the "long black body" or "long black line". The long black line represents a bearish period in the marketplace. During the trading session, the price of the stock was up and down in a wide range and it opened near the high and closed near the low of the day.

By representing a bullish period, the "long white body," or "long white line" (in the EBAY chart below, the white is actually gray because of the white background) is the exact opposite of the long black line. Prices were all over the map during the day, but the stock opened near the low of the day and closed near the high.

Spinning tops are very small bodies and can be either black or white. This pattern shows a very tight trading range between the open and the close, and it is considered somewhat neutral.

Doji lines illustrate periods in which the opening and closing prices for the period are very close or exactly the same. You will also notice that, when you start to look deep into candlestick patterns, the length of the shadows can vary.

The Bottom Line
The candlestick charting pattern is one that any experienced trader must know. As Japanese rice traders discovered centuries ago, investors' emotions surrounding the trading of an asset have a major impact on that asset's movement. Candlesticks help traders to gauge the emotions surrounding a stock, and thus make better predictions about where that stock might be headed.

Read more: Candlestick Charting: What Is It? https://www.investopedia.com/articles/technical/02/121702.asp#ixzz3oNoEpiIg