Technical Analysis of Stock Market: Tools and Applications

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Technical Analysis
Technical Analysis of the stock is the prediction of the future movement of the stock
prices based on the historical prices of the stocks. The past prices and the movement of the stock
is incorporated to base upon the movement of the future movement of the share prices. Various
methods and tools are applied to identify the pattern followed by the share prices of the
company. The application of the technical analysis was firstly done in the 18th Century where
some traders in Japan applied the method of identifying the movement of the prices. Candlestick
Chart was the name of the technique applied by the traders (Thaler 2016). Technical analysis is
not given much importance by the economist as the analysis considers the past data and predicts
the movement of the share prices of the company. Historical prices and data could not be
representative of the future as the movement in the share prices of the company is random
according to the economist. However, on the other hand side the Efficient Market Hypothesis
says that the stock prices reflects full potential information about the company. The EMH
provides the perspective of the movement in the stock prices of the company and says that the
current prices of the stock reflects all potential information of the stock (Hamid et al. 2017).
Many economist says that if the current prices of the stock incorporates all the current
and potential information about the stock prices of the company then the same would be easy for
the investors to assess the fair value of the stock. In accordance with the technical analysis of the
stock, it is anticipated that the movement of the share price of the company would be
unforecastable as the share price reflects all current and potential available information in the
share prices of the company. Technical analysis uses geometrical pattern or the prediction of the
future stock prices and the price movement in the stock prices of the company (Cervelló-Royo,
Guijarro and Michniuk 2015). Fundamental Analysis on the other hand incorporates the

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accounting and economic data of the company for assessing the fair value of the share price of
the company. Application of random walk hypothesis and statistical prices of the stocks were
some of the common features that were applied by the investors for assessing the fair value of
the stock and the movement of the stock prices of the company. The empirical analysis
conducted by the Eugene F. Fama shows that there was a significant contribution by the efficient
markets by studying and assessing the asset-pricing model in co-operation with the single and
multi-factor (Naseer and bin Tariq 2015). The characteristics of the efficient market is such that
it allows the investors for earning normal profits where the current prices of the stock reflects all
potential and influential information. The categorization of the various forms of market can be
categorized based on strong efficient market, semi-strong market and weak form market (Lo
2017).
Application of technical and fundamental analysis in generating significant profits for the
company in the strong efficient market is not possible. The share price of the companies reflects
potential informations about the company. There should be inclusion of various factors and
information, which should be potential enough for reflecting/predicting the movement of the
share price of the company (Nazário et al. 2017). In the case of semi-strong market, investors can
apply potential news, which can potentially affect the stock prices. In the case of weal efficient
market, both technical and fundamental analysis could be applied for predicting the movement in
the share prices.
Despite of the various accolades given in the context of efficient market hypothesis many
have argue that inefficiencies in the market can exist from time to time in the market. Investors
can only earn profits when they find any abnormal events or in perfect of any such information
which is not reflected in the share price of the company (Ţiţan 2015). Recently technical analysis