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Criticsoftechnicalanalysis

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Thoughusedwidelyintoinvestmentresearchandtradingadvisorybusiness,technical
analysishasitsskeptics.Thewiderangeoftechnicalindicatorsalongwithdiverseprognosis
ofthechartpatternsmakesitmoreofanartthanascience.Exactandaccurateprognosisofa
particularchartformationisadifficultactivityasthejudgmentoftheformationissubjective.
Evenifthechartistiswellversedwiththeunderlyingdynamicsinaformation,thereisa
possibilitythattheinferenceheorshemighthavedrawnusinghisskillscouldnotturnoutto
betrue.However,duetoincreasedvolatilityinthefinancialmarketsfollowingtheboomin
informationtechnology,chartsarebecomingquiteapopularmodeofanalyzingpricingaction
inthefinancialmarkets.DespitethenumerouscriticsagainstTechnicians,itisawellknown
factthatthepopularityofchartinganalysisisincreasingdaybyday.
Importanceofsupportsandresistance

Markets
Equity
MOVERS
Name

WORLDINDICES
Value

ANALYSIS
%Change

BSESensex

27822.37

0.6397

Nifty

8420.10

0.6509

Nasdaq

5070.03

0.1700

DJIA

18312.39

0.0700

S&P500

2127.83

0.0600

More

Supportsandresistancearetwoofthemostcriticalaspectsinatradesetup.Theimportance
ofthesetwocorrespondingdynamicscouldbeunderlinedbythefactthatanyprimary
technicalstudyoracombinationofindicatorseventuallyintendstoarriveatsupportsand
resistancesfortheunderlyingsecurity.Insimpleterms,supportisthelevelatwhichthe
securityisexpectedtowitnessbuying,therebycushioningitsfallwhileresistanceisthelevel
atwhichthesecurityisexpectedtowitnessselling,ensuringthatthepricedoesnotriseabove
thelevelsofresistance.Thebasictopsandbottomsformationisthesimplestwaytoarriveat
thesupportsorresistancesonanypricechart.Theotherstudiesforarrivingatthesupports
andresistancesarePivotPoints,FibbonaciRatio,movingaveragesandlongtermtrendlines.

MutualFund/IPO/FPO
Currency/Commodity

Interpretingvolumesonachart
Volumescouldhaveasizablebearingonchart.Attimes,analyzingpricemovesinconjunction
withthemovementinvolumesonthesecuritycouldgiveanexactandaccurateideainterms
ofidentifyingkeyreversalpoints.Ifthesecurityiswitnessingamassivesurgeinvolumesata
particularpointofprice,theremaybechancesthatasubstantialchunkofthemarket
participantsbelievethatpointinpricetobeacriticalsupportlevel.Attimesthevolumestendto
surgeafterpricessuccessfullybreachacriticallevelandtendtradeaboveit.Thismagnifies
theimportanceofvolumesasanindicatorofthecrowdpsychology.
GoldenMeanRatio
TheGoldenmean,representedbytheGreekletterphi,isoneofthosemysteriousnatural
numbers,likeeorpi,thatseemtoariseoutofthebasicstructureofourcosmos.Unlikethose
abstractnumbers,however,phiappearsclearlyandregularlyintherealmofthingsthatgrow
andunfoldinsteps,andthatincludeslivingthings.
Thereisaspecialrationthatcanbeusedtodescribetheproportionsofeverythingfrom
nature'ssmallestbuildingblocks,suchasatoms,tothemostadvancedpatternsinthe
universe,suchasunimaginablylargecelestialbodies.Naturereliesonthisinnateproportion
tomaintainbalance,butthefinancialmarketsalsoseemtoconformtothis'goldenratio.'It's
derivedfromsomethingknownastheFibonaccisequence,namedafteritsItalianfounder,
LeonardoFibonacci(whosebirthisassumedtobearound1175ADanddeatharound1250
AD).Eachterminthissequenceissimplythesumofthetwoprecedingterms(1,1,2,3,5,8,
13,etc.).
Butthissequenceisnotallthatimportantrather,itisthequotientoftheadjacenttermsthat
possessesanamazingproportion,roughly1.618,oritsinverse0.618.Thisproportionis
knownbymanynames:thegoldenmean,PHIandthedivineproportion,amongothers.So,
whyisthisnumbersoimportant?Well,almosteverythinghasdimensionalpropertiesthat
adheretotheratioof1.618,soitseemstohaveafundamentalfunctionforthebuildingblocks

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ofnature.
Importanceofchart
Thereisaparticularreasonwhychartshaveassumedsignificantimportanceintherealmsof
financialmarketresearchandanalysisoverthelastcoupleofdecades.Oneofthemajor
reasonsforthiswasthewidespreadboomintheinformationtechnologyduringthe1990sthat
facilitatedtheuseofchartingsoftwaresandalsocontributedtoanincreasedawarenessabout
theuseofchartsasanefficientindicatortotrackthefinancialmarkets.Also,giventhe
increasedboominfinancialreportingandthepenetrationoffinancialmediasinemerging
economies,marketmovementsacrosstheworldbecamemuchmoreresponsivetomicro
trendsinseeminglyunrelatedsectorsandsegmentsinglobaleconomy.Therefore,asthe
newsflowincreasedmultifold,themostreliantindicatorastowherethepricesaremoving
turnedouttobethepriceitself.Wecansaythattherapidboominglobalnewsnetworksand
theriseofthesocialmediablurredthelinesbetweenthenationsandfinancialmarketsaround
theworldstartedreflectinggeneralizedsentimentsinworldassetmarkets.Theinformation
revolutioninlasttwodecadesasputthefocusrightbackontooneofthebasicsoftechnical
analysisthemostcriticalindicatorofwherethepricesaremovingisthepriceitself.
FIBONACCIRETRACEMENTS
Fibonaccisequencesaregenerallymeanttofindoutreversalsincharts.Themainareatolook
forinachartwithFibonacciretracementsistofindcorrectionsorpullbacks.Insimplewords,
thebasicpurposeoftheseretracementsistofindsupportsandresistances.Theretracements
are100%,61.8%,50%and38.2%.NowletslookatthedailychartofCopper,Fibonaccilevels
werebuildfrombottomofRs397.1i.e100%ofthevaluetoRs433.7perkg.

Thisisalsotheimmediatebullishwaveafterthedowntrend.Ifonehastolookatthesupports
andresistancesforCopperfromtopi.eRs433.7,hewillfirstconsiderthelevelsofRs419.9,
whichisalsothe38.2%correctivelevel.Although,23.6%isoneretracementlevelinbetween
itisnotconsideredveryimportantinFibonacciseries.Thetwolevelsthatarelookedare
38.2%and61.8%.
IfCopperfallsfurtherbelowRs419.9levelsitisexpectedthatitwilltrytofindsupportsatRs
411orsomewherenearthatasitisthe61.8%correctionpoint.Similarly,abouncefromRs
411willfindhurdlesatRs415andRs419.9perkgthatare50%and31.8%pullbackpoints
forCopper.
Note:Though61.8%and38.2%aregivenmuchweightageinFibonacciseries,itdependson
individualanalyststogiveweightageto50%and23.6%retracementsifothertechnical
indicatorsindicatethesamelevels.

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