Importance Of Technical Analysis

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Survival Analysis on Technical Analysis of Stock Prices Introduction The stock prices of a company stock is the highest price that is someone is willing to pay for that stock or in other words the least price that it can purchased. Generally, it is assumed that stock prices usually follow random walk and thus concept of Random Walk is used to model the behaviour of stock prices. This practice assumes that investor act rationally and without any biases. So at a moment the valuation of stock prices is based on future expectation. In these circumstances, all present information affects the prices, and change happen only when new information comes out. However, in reality movement of stock prices do not completely follow random walk. There…show more content…
It assume that stock prices trends will repeat itself and future movement of stock prices can predicted based on previous trend. The Analyst study past trend and look for some indicator such as volume traded and use it to forecast future trend. Technical analysis forecast using techniques such as chart analysis recognition of pattern in the chart and cycle and seasonality and computerized technical trading systems. Earlier not much of the importance and acceptance was given to the technical analysis of stock prices, however in recent years that have been increasing popularity of using technical analysis among practitioners, investors and academician. This recent increase in popularity is also reflected in Indian Market as lot of Technical analysis recommendation started coming up public domain. It is important to find out how efficient the technical analysis works for prediction of stock prices in future for Indian stock…show more content…
Dow more than 100 years ago, there has been extensive use by the market practitioner. Several academic studies in the past had been done to find the effectiveness of using technical prices and their significance among the investors. As literature [Cheung and Wong; 2000] suggest that about 30%-40% of foreign exchange traders of the world believe that technical analysis plays major factor in determining exchange rates. Recently, increasing use of technical analysis models is being explained by rational noisy expectation models [Jennings and Brown; 1989], [Grundy and McNichols; 1989], Chaos Theory [Osler and Clyde; 1997], herdings and agent based models [Froot and Stein; 1992] 1992]. The paper [Andrew and Mamaysky; 2000] conducted a research on the effectiveness of technical analysis and developed systematic approach to recognize the pattern using nonparametric kernel regression. They try to figure out regularities in time-series data of prices by extracting nonlinear pattern from noisy data and developed some computational algorithm and their applicability in Nasdaq and came out the possibility that technical analysis can add value to the

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