Stock Market
analysis primarily falls under two categories: Fundamental Analysis and
Technical Analysis. Fundamental analysis tries to study the underlying business
and arrives at a fair value for the
Stock. Technical analysis is concerned with
the movement of the stock price.
Technical analysis
studies the historic movement of stocks, with the underlying hypothesis that
the stock
pattern repeats itself. The assumption is based on basic human
emotions of greed and fear which comes in to play at various stages of the
stock price movement. These emotions results in the herd mentality of the
investors and results in predictable pattern of price/
index movement.
The seminal work written by Robert D. Edwards and John Magee is based on
the Dow Theory of stock price movement. It covers important reversal pattern,
consolidation signals,
trend lines, channels, case studies of various stock
price movement, support, resistance etc.
The book explains the distinction between primary trend,
secondary trend, and minor trend. As described with examples in the book, a
person who buy a stock at its low price and tries to sell it at its high price
will under perform one who buys when a clear buy signal from technical analysis
is given and sells at confirmation of a reversal. The book is a useful guide
for all investors who take this vocation seriously.