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FIN630 Assignment No 01 Solution & Discussion Due Date:Novemebr 23,2015
Following are the four independent situations. In each of the situation you are require to analyze the
situation and advise what an investor should do to maximize profit or minimize risk.
Consider a price pattern that forms a soccer formation. What would you suggest to investors either
enter into the market or not. Support your answer with logical reasoning.
Two investor s A & B were discussing technical analysis. Mr. A said that when you see a breakout in
Head & Shoulders Bottom, it shows a bearish market and investor should take a sell position after
watching this type of trend. Whether Mr. A is right or not? Justify your answer with logics.
Consider stock of ABC Company which is trading between the support and resistance level. As an
investor what should be your basic strategy (buy or sell) at support and resistance. Support your
answer with logical reasoning.
Relative Strength Index (RSI) for stock Z is 26 and stock has closed below the upper Bollinger band.
What an investor should do in this situation either to buy or sell the stock, and why?
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Technical chart pattern depicting a security whose price has reached bottom and is moving up.
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Relative Strength Index
Wilder posited that when price moves up very rapidly, at some point it is considered overbought. Likewise, when price falls very rapidly, at some point it is considered oversold. In either case, Wilder deemed a reaction or reversal imminent.
The level of the RSI is a measure of the stock's recent trading strength. The slope of the RSI is directly proportional to the velocity of a change in the trend. The distance traveled by the RSI is proportional to the magnitude of the move.
Wilder believed that tops and bottoms are indicated when RSI goes above 70 or drops below 30. Traditionally, RSI readings greater than the 70 level are considered to be in overbought territory, and RSI readings lower than the 30 level are considered to be in oversold territory. In between the 30 and 70 level is considered neutral, with the 50 level a sign of no trend.
DEFINITION of 'Saucer'
A technical charting formation that indicates that a stock's price has reached its low and that the downward trend has come to a close.
Dead Cat Bounce
BREAKING DOWN 'Saucer'
Saucer formations will exhibit very low volume figures at the point when the stock's price was the lowest.
pLEASE UPLOAD COMPLETE SOLUTION IF SOME ONE HAVE?
I am not sure but here is what I understood (at least a bit i guess)
Plz correct me wherever I am wrong.
Saucer formation has a price rise in the end indicating high demand as well so buy the stock
Breach or breakout on the neckline (bottom) of Head & Shoulders indicates that the trend will continue to deteriorate from there and due to this downside breakout and investor should sell as suggested by Mr. A.
Support indicates that the stock price will not fall from previous highs while resistance means the the price will not go above previous lows. Investors look to buy during support while they want to sell in resistance.
Stock Z has RSI < 30 which means it is oversold which indicates that investor should buy the shares. The stock also closes near upper Bollinger Band which also supports the idea of buying the stock. If Stock Z would have closed above upper Bollinger Band then a technical analyst would have advised to sell the stock as soon as possible.
so much thanks bro
as per my understanding, due to slow growth in market no any investors interested to invest
A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that signals a shift from a downtrend to an uptrend. This pattern is traditionally thought to last anywhere from several months to several years. Due to the long-term look of these patterns and their components, the signal and construct of these patterns are more difficult to identify than other reversal patterns.
The way in which the price moves from peak to low and from low to second peak may cause some confusion as the long-term nature of the pattern can display several different price movements. The price movement does not necessarily move in a straight line but will often have many ups and downs. However, the general direction of the price movement (either up or down) is important, depending on the stage of the pattern.
Volume is one of the most important confirming measures for this pattern where volume should be high at the initial peak (or start of the pattern) and weaken as the price movement heads toward the low. As the price moves away from the low to the price level set by the initial peak, volume should be rising.