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What approach attempts to chart historical price movements of financial instruments to predict future price movements...

What approach attempts to chart historical price movements of financial instruments to predict future price movements instead of trying to calculate the instrument's fair price? Historical Price Chartist Chartalist Market price

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Expert Solution

Answer: Prices of stocks and other financial instruments are based on past historical prices also.

If we take the example of Shares, we can predict future prices on the basis of following two approaches:

Trend analysis- Analyst can analyze past trend of a particular stock or index, if stock is over ought and trading on 52 weeks high then there may be a slight sell of and profit booking can be seen in the stock, if on the other hand, stock is oversold then buying can be seen as short positions will be covered. Past prices influence the future movements.

Moving averages- Analyst analyzes 30 days, 50 days and 200 days moving averages and exponential moving averages, moving average is calculated by taking last 30 days closing prices of stocks and dividing the sum by number of days (If we calculate 50 days then 50 days data will be taken). If a share trading above its moving average then it is a good buy for short to long term and vice versa.

jeff jeffy answered 7 months ago
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