Forecasting Financial Markets to Bring Fortune

807 Words4 Pages
As long as financial markets have existed, people have tried to forecast them, in the hope that good forecasts would bring them great fortunes. In financial practice it is not the question whether it is possible to forecast, but how the future path of a financial time series can be forecasted. Among practitioners fundamental and technical analysis are techniques developed in financial practice according to which guidelines financial time series should and could be forecasted. They are intended to give advice on what and when to buy or sell.1.1 What is Technical Analysis The methods used to analyze securities and make investment decisions fall into two very broad categories: fundamental analysis and technical analysis. Fundamental analysis involves studying the fundamentals of a company in order to estimate its value. Technical analysis takes a very different approach; it is only interested in the price movements in the market. A technical analyst looks at price changes that occur on a day-to-day or week-to-week basis or over any other constant time period displayed in graphic form, called chart. Despite all the fancy and exotic tools it employs, technical analysis really just studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future. In other words, technical analysis attempts to recognize the emotions in the market by observing the market itself, as opposed to its components. If one can truly understand the pros and cons of technical analysis, it can give a person a new set of tools or skills that will enable him to be a better trader. Technical analysis can be used on any security with historical trading data. Technical analysis can be done for stocks, futures and com... ... middle of paper ... the world to do is to get on the wrong side of a trade and to get stubborn. That is also potentially the worst thing you can do. The stock will move against you in ways and to an extent that you previously found virtually unimaginable. Technical Analysis, if practiced with discipline, gives you specific parameters for managing risk and improving gains. 1.3 Objectives of the Study- With this research we aim to-  Understand chart patterns, the working and use of select indicators and price patterns.  Assess the impact technical analysis has on earnings and risk management.  Study the application of Dow Theory and Efficient Market Hypotheses (EMH). 1.4 Hypotheses to be studied- • Null Hypotheses (Ho) - Technical analysis does not help improve earnings and mitigate risk. • Alternate Hypotheses (H1) - Technical analysis does help improve earnings and mitigate risk
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