Chapter 1A : Introduction of Technical analysis

In the course of years of stock market study, two quite distinct schools of thought have arisen,
two radically different methods of arriving at the
answers to the traders problem of what and when . In the parlance of the Street, one of
these is commonly referred to as the fundamental or statistical,
and the other as the technical .

The stock market fundamentalist depends on statistics. He examines the auditors reports, the
profit-and-loss statements, the quarterly balance sheets,
the dividend records, and policies of the companies whose shares he has under observation.
He analyzes sales data, managerial ability, plant capacity,
the competition. He turns to bank and treasury reports, production indexes, price statistics,
and crop forecasts to gauge the state of business in general,
and reads the daily news carefully to arrive at an estimate of future business conditions.

Definition of Technical Analysis
The term technical, in its application to the stock market, has come to have a very special
meaning, quite different from its ordinary dictionary definition.
It refers to the study of the action of the market itself as opposed to the study of the goods in
which the market deals.

Technical Analysis is the science of recording, usually in graphic form, the actual
history of trading (price changes, volume of transactions, etc.) in a certain stock or in
the Averages and then deducing from that pictured history the probable future trend.

Fundamental_vs_Technical_Analysis.jpg (13.13 KiB) Viewed 235 times

Observations regarding Fundamental analysis

The main problem with fundamental analysis is that its indicators are removed from the
market itself. The analyst assumes causality between
external events and market movements, a concept which is almost certainly false. But, just as
important, and less recognized, is that fundamental
analysis almost always requires a forecast of the fundamental data itself before conclusions
about the market are drawn. The analyst is then forced
to take a second step in coming to a conclusion about how those forecasted events will affect
the markets! Technicians only have one step to take, which
gives them an edge right off the bat. Their main advantage is that they dont have to forecast
their indicators.


Some Observations in markets

Stock prices are determined solely by the interaction of demand and supply.
Stock prices tend to move in trends.
Shifts in demand and supply cause reversals in trends.
Shifts in demand and supply can be detected in charts.
Chart patterns tend to repeat themselves.


To be continued.................