Page 198 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Unit 6: Technical Analysis

These are Line Charts, Bar Charts, Point and Figure Charts. Notes
The trouble with most chart patterns is that they cause their followers to change their
opinion very frequently.

Most chart services change like the wind.
One day they put out a strong buy signal, two weeks later, they see a change in the pattern
and tell their clients to sell, then two weeks later, they tell them to buy again.

The result is that these patterns force their followers in and out of the market time and
time again. This might be great for brokers' commission, but not so great for the investor.
Most of the technical indicators make sense when examined individually but when one
examines many technical indicators simultaneously, the interpretation of their collective
meaning is often contradictory and confusing.

6.11 Keywords

Confidence Index: It is the ratio of a group of lower-grade bonds to a group of higher-grade
bonds.
Indicators: Indicators are calculations based on the price and the volume of a security that
measure such things as money flow, trends, volatility and momentum.
Odd Lots: Stock transactions of less than, close to 100 shares.
Trendline: A charting technique that adds a line to a chart to represent the trend in the market or
a stock.

6.12 Self Assessment

Fill in the blanks:

1. Technical analysis is a method of .................. securities by analyzing the statistics generated
by market activity, such as past prices and volume.
2. The .................. of price change is as important as the relative size of the change.

3. Technical analysis assumes that, at any given time, a stock's .................... reflects everything
that has or could affect the company.

4. Technically-oriented investors start by checking the .................. of the stock.
5. Technicians know that there is no real value to any stock and that .................. reflects
supply and demand.

6. Fundamental analysis is based on inadequate income statements and highly subjective
nature of .................. multipliers.

7. According to Dow, "The market is always considered as having .................. movements, all
going at the same time."

8. .................. indicators are used to determine what the main body of stocks is doing.
9. A .................. is a simple charting technique that adds a line to a chart to represent the trend
in the market or a stock.

10. If volume is starting to decrease in an uptrend, it is usually a sign that the upward run is
about to ..................

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