case study on technical analysis

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case study on technical analysis

Ep 127: Technical Analysis Case Studies & ABCD Patterns

Hey, this is Sasha Evdakov.

Today we’re going to take a look at technical analysis case study as far as Tesla goes. And we’ll do a little bit of practice.

This is great if you’re getting started with technical analysis or you want to learn a little more about technical analysis. You want to break apart a chart in great detail.

That’s what we’re going to do is we’re going to take a look at this chart. And we’re going to break it apart in detail.

If you’re reading this, I highly recommend you take a look at the video. I will give you some critical insights on what to watch for as well even if you’re reading this.

Before we go in detail onto this keep in mind that none of the stocks here are recommendations to buy or sell. Consult with your financial advisor before taking on any trade.

Illustration of the Example – Tesla

Let’s take a look at the chart. I’m going to use a drawing program here to illustrate this example. I believe you want to understand investing and looking at charts.

It’s essential that when you’re studying and evaluating charts the point behind it is to predict future price movements.

But to predict future price movements, you need to:

  • understand how a stock moves
  • understand how a stock behaves
  • understand how it acts
  • know what it’s done in the past
  • see what you’re expecting to do in the future

For example, you might be looking at Michael Jordan when he was very popular. He was able to score a certain amount of points every single game.

Then more than likely the next game or the next game after that you would expect a specific type of result. Time and time again because that’s what that type of player or person did.

With stocks is the same story. Tesla has a specific type of group of traders. Not only because it trades at a particular price range, but because of the people that are attracted to trading this type of stock.

There are some day traders, swing traders, longer-term investors, but in general. It attracts a specific type of person. If you’re looking for like a Microsoft or a Bank of America, those attract a different kind of person.

Sometimes those things overlap, but in general, you have a type of person that gets attracted to these types of stocks. In either case, when we start evaluating these charts, you’re looking at human behavior.

The price tells you:

  • about human behavior,
  • what people want
  • what people don’t want
  • how things are acting
  • when things are running out of fuel

case study on technical analysis

Take a look at this upward trend right here. As you look at Tesla here and you’re looking for this uptrend that we’ve had eventually these things run out of gas. The steeper these things move eventually they run out of gas.

You can’t keep pushing a rocket ship to the moon without giving something back. Eventually, it runs out of gas. At least in our current environment and state that we live in.

In this case, the same concept as you continue to move higher eventually this is why you need pullbacks. When you see things continuing to move higher, that’s why finally you get these pullbacks. These pullbacks allow that stock to continue to move higher, digest or consolidate.

Stocks don’t go straight up. I think if you’ve been trading for a little bit of time you know and understand that. In either case, one of the things that I look at when I first look at charts is I tell myself a story.

Especially when I didn’t understand how stocks moved and behaved. I used to tell myself a little story, and when it comes to that, it’s an exciting concept. When you tell yourself a story, it makes things easier. Humans think in terms of stories.

When it comes to Tesla and we start looking at this you can see this stock was moving sideways. It was under the $50 range. The story here is this stock was the first company. It was getting started and building energy and momentum.

It’s getting its exposure, the marketing – that was happening. And people started to build into buying this stock. As they continue to develop into this eventually right around early 2013, you had some catalyst. You had a news catalyst, some awareness that started to happen. More people got excited about what this company was doing.

case study on technical analysis

There was a lot more to the forefront of this company. And when this happened, this stock started to explode. You can see that by this big candle bar that happened. When this happened, more buyers continued to step in. There’s more excitement, and we continue to move higher to the upside.

You could discuss every bar and every tick here but in our sake for our examples of evaluating a stock chart we’re looking at the bigger picture.

The stock had a great movement to the upside up until about the end of 2013. In 2013 it made its presence known. Once its existence was known so many people got into the stock and then it needed a pullback. It was too far extended, and it was starting to run on fumes. The evaluation for how far it went in a short amount of time was far stretched.

If you look at the moving average here that we have and compare it to at the highs the distance, there is much greater than if we look at somewhere in June. The distance is a lot smaller. In either case, you can see it’s quite stretched.

  • What are the stocks do when they get overextended?

Well, they pull back, and that’s what happened.

This stock needed a calming down period to acquire new investments to get more value. Also, people who got into the stock at these earlier points started taking some profits.

We loaded the gun back up and then we got more gas. After we got more gas, we continued higher. And a stock continued to power to the upside once more.

Over time things get a little extended. We’re coming towards the end of our tank, and we need a little bit of the breather.

  • What does the stock do?

Towards mid-2014 we have a slight pullback. This is what you do if you’re telling yourself a story. Now the stock continued to move in this wave-like pattern for over the next year or two. But we slowly start running into roadblocks at higher prices. This is where the problem begins to lie with this stock.

We’re starting to move, but we’re not moving as fast. The stock now becomes a lot more known. It becomes more available to the public as far as news goes and as far as awareness goes. The price that it’s priced in. It needs to start hitting things in perfection for it to continue to grow. And that becomes a lot more difficult because they are innovating.

case study on technical analysis

Over the next 2015 and 2016, we’ve been moving in a sideways pattern between the 175 and 270 level. And in there we’ve had some ups and downs. But on a bigger picture scope, we’ve had some sideways action.

If you break this apart once more, you can see that at the beginning we had an accumulation stage. Then in the next part, we had that growth stage. The stage where we had that upward movement. The initial investor started to come in. And then from then on, we’ve been in a distribution or consolidation stage. Or we are moving sideways.

You can see that this is how you’re looking at a stock when you’re starting to break it down.

ABCD Patterns – What to pay attention to?

When we start looking at some more technical patterns and technical evaluations you can start looking at things like ABCD patterns.

As you start getting more specific, you can look at ABCD patterns on the weekly. Or you can look at it on the daily, and you can look at it on the monthly. I’m doing it right now on the weekly because it’s easier to see, especially as a teaching example.

Basic questions:

  • Where are ABCD patterns?
  • How are they formed?

They’re usually based on swing points – where the stock changes directions. That’s what a swing point is.

case study on technical analysis

Look at where a stock changes directions. You get an idea of the swing points. When we start looking at ABCD patterns what’s interesting about them is they talk about human behavior.

They’re telling you about the cyclical moves in stock and rhythm in a pattern. Like you have a sleep pattern. Typically most humans go to bed at 10 p.m. and wake up by 7 or 8 a.m.

You have that sleep pattern that you continue to go through day in and day out. You have that pattern, and ABCD patterns are very similar. If I plop A where the stock changed movement, then we go to the B at the next point where we had a change.

That would go to B to C. We have that little pullback and the C to D. You can see how that works out in terms of the patterns. If you start drawing things together and connecting these you can see that pattern standing out – ABCD patterns.

I’ll draw a couple more patterns so that you’re aware that ABCD patterns don’t have to happen to the upside.

Also, you have them to the downside. Sometimes they’re not as clean, but I will still share with you how those look. That way you get an idea, so we had a downward ABCD pattern and 2015 to about 2016 – Tesla. You can see there are another nice and clean ABCD patterns. Yes, there are other ABCD patterns in between that, but right now I’m showing you the clean patterns.

case study on technical analysis

That way you learn what you’re looking for. And once you discover what you’re looking for you can search for subtle little ABCD patterns. It’s better to focus on cleaner patterns. That way you understand what’s going on. Once you know what’s going on with ABCD patterns, then you can modify these. You can manipulate these and use them on your terms and your chart.

Now here’s the other exciting fact behind ABCD patterns. When you’re looking at ABCD patterns, you’re looking for the volume to confirm this pattern.

Essential question: How is that volume coming into the stock?

From the A to B pattern you have massive volume coming in or good volume. When you have the volume, you have gas in the gas tank. In this case, you can see that we have volume coming in. And we have the full price spread that follows through.

That’s why you continue to get the follow through on that movement. When you start getting a pullback on the B to C leg, this is typically lower volume.

As you get into the next stage, it might even appear that it’s higher volume. The thing is if you compare it to the previous volume it should be lighter volume. Then finally the next leg (C to D) you want to see the more substantial volume to the upside from the C to D leg.

It’s more massive than the B to C leg. This is not always the case I found over the years. You may see some lighter volume, but the expansion can still be pretty good. Or you still want an increase in volume.

If you notice here in Tesla in 2014 even though we don’t have heavier volume than the retracement B to C, we still have an incline in volume. Or the volume starts to grow. As you can see it’s not always the case, but that’s what you want to see.

What’s Happening to The Downside?

This is the same thing when it happens to the downside. If we take the 2015 movement to the downside, the A to B you can see that it’s the slightly red volume is picking up.

The bearish volume or the big sticks on the red bars are picking up. As we get this retracement which is the B to C you can see the volume is very light. The B to C moves to the upside because this is a bearish pattern.

It’s contracting, and when we’re talking about the bullish volume, you can see it’s a lot lighter. Then as we get our next break lower again which is the C to D, you can see that volume picking up again on the bearish end.

case study on technical analysis

That’s what you like to see on these charts. And that’s what makes a significant price movement. That’s healthy. If you see a stock moving in a direction with lighter volume that means there’s less gas. That means that there’s less conviction. It’s less likely to stand the test of time. It’s less likely to continue moving in that direction.

It doesn’t mean it can’t. It means it’s less likely to continue. That’s why we always look at volume as a clear sign or indicator for future price movements and actions and behaviors.

When we start evaluating at this chart, you’re combining multiple things.

You’re combining:

  • ABCD pattern
  • the price action

When we’re talking about price action, it’s essential how the price is moving, which means these wide bars from the open to the close.

You’re putting those together to create and evaluating that chart. At least that’s the simple and basic form.

Pro tip: You could use other indicators to help with this, but I find that the more complicated you make things, the more cluttered your mind becomes. Keep things simple.

As we look at the chart as a whole one of the things that I always like to stress is you start comparing these charts. You start comparing them to the previous volumes.

The other thing is when you look at retracements and pullbacks a typical retracement is 50%. That means nothing is wrong with the stock. You can get other retracements which are 61.8 or 38.2, but it’s based on the Fibonacci sequence.

The simple thing behind the Bonacci sequence is it’s a way to gauge retracement. Fibonacci numbers are mathematical numbers. When you add the first two, you get the next one. Then you add the following two you reach the next number and so forth.

They continue moving along those lines. But as you put them in charts, it allows us to predict human behavior better. These are not magic numbers or formulas that are going to give you perfect answers whenever a pullback is going to stop. But it’ll give you a guideline of what’s a healthy pullback and retracement.

If we take this initial movement and we look at this stock, overall you can see our pullbacks here are 50%, 38.2%, 23.6%, and 61.8%.

I focus on 50%, 61.8%, and 38.2% – those are the main ones that you want to focus on. Something like 23.6% doesn’t hit as often. But if you look at this and we drew the line from the lows or the swing point to the highs you can see what these lines tell you.

case study on technical analysis

Our pullback comes right at 50%. You can see if I draw that line all the way across you can see we’re hitting right at 50%.

The other important thing you can remember is the projected move. How far you expect the next step to go from the C point or after you get the retracement?

Well, if you measure A to B, you will get the distance from C to D.

In this case, if we take our numbers (call it $40), you get about 155 points on the left.

If you draw the same thing from the lows of point C and you go all the way to D, you get about 148 points. About five points off which is not a big deal when it comes to stocks.

You can see it’s close when it comes to the projected move. It’s interesting how this works out.

Next example – ABCD pattern:

If you look at the next leg or the next stage, we have our ABCD pattern. We look at this measure move right there. You can see from here to here we have 147 and then from here to here we also have 114. It’s a little bit less, but the move is still in that range. It’s not going to be perfect in the market.

Take a Look at Retracement

case study on technical analysis

From the retracement of 2014 on that movement the pullback we went from about $130 to about $264.

And we pulled back to about 180-190. You can see that it pulls back right into that 61.8% level. It’s fascinating how things work out in those ways.

Bearish Example

case study on technical analysis

Take a look at the bearish example that we had in 2016. Here’s our projected ABCD pattern. It’s a little bit different looking it’s not as clean. But it gives you the same concept.

You could even say that you had a smaller ABCD pattern right here. That’s another one as well to look at. You can see we’re coming in on this retracement right there to the 50%. Notice that we have 50%, and there are our resistance and retracement.

Our pullback is into 50%. The measured move from A to B – we call it 78 points. And from highs to the end is about 92 points. It’s about 20 off, but it’s very similar. It’s not going to be perfect, but it’s very similar.

If we look at the volume of these movements, you can see the volume is building right here on the downward leg. Then if you look at retracement and you go straight down and look at the volume our volume is drawing up. And then all of a sudden on the break the volume picks up.

That’s what we’re watching on these moves and these measured price moves. And that’s what you get. You get a subtle clean movement in the stock when you’re watching these things.

When you’re looking at ABCD patterns, swing points, and measured moves, this is your money leg. The C to D is your money leg. Once you find the A to B and B to C pattern, the C to D is that money leg.

Whether that’s to the upside or whether that’s to the downside – that’s your money leg.

You can play things in ranges. We have sideways patterns right here in the stock. You can play things in ranges, but these ranges are not as big in terms of price movement as a C to D or an ABCD pattern.

I often find beginners struggle finding ABCD patterns. This is partly due to the stocks that they’re looking at, but also their understanding of ABCD patterns. If you struggle to find ABCD patterns, it’s crucial that you move on to another stock. That is because you’re either looking for something that’s not there. Or you’re forcing the trade.

If you can’t find an ABCD pattern, move on to another stock. Let me show you some examples of some famous companies. The reason why they’re popular is that they move in the appropriate behavior.

They have enough volume. If you’re trading stocks with low volume (penny stocks), sometimes it’s challenging to find ABCD pattern. But in general, with most stocks, you can discover ABCD patterns.

Let’s take a look at a few quick companies, and you’ll get an idea. I’ll backtrack this to Apple. Precisely the same thing what we discussed. If you take a look here is our A to B and then B to C and C to D pattern.

case study on technical analysis

If we take the measured move from A to B, it should be equal similar to C to D. This pullback from B to C should be about 50% give or take.

Let’s take the measured move:

  • A to B (about 90 points)
  • C to D (about 80 points)

It’s very close and similar. If we calculate this pullback, there is a 50% pullback. It hits that line entirely and then takes off to the upside.

Now we’re looking at this next price movement that we have.

  • Can this be forming another ABCD pattern?

Absolutely.

Let’s take a look from A to B. We have right there it’s coming in it’s hitting right around 50%. It’s similar on the pullback. There’s our line of support. It’s also hitting the line of resistance right here of the previous one. It was coming back to retest it. And if you do the measured move, you can see that we get about 80 points.

We’re looking for potentially a target of 172 for this stock. That’s how you get a necessary target for the upside.

Focus on this: pay close attention to the volume. I usually want to see a larger volume to the upside here. Now with this stock, unfortunately, we got a little bit lighter volume than here on some of the pullbacks.

This is not one thing I like to see. It can happen, but it’s not something I like. The main reason is that I always want to see the volume going with it.

If I go into the weekly chart, you want to see more volume coming in as we’re moving higher. On these pullbacks, you want to see the lighter volume. This is not the case when it comes to Apple. And you can see the volume is also dying down as we continue moving higher.

That’s not usually a good case. But it doesn’t mean the stock can’t go higher. It means I’m more cautious about these stocks as they continue to move higher especially if they have less volume.

You have smaller ABCD patterns within this. Because even to the downside if you’re doing calculations so you could trade those but usually keeping a bear market. The downside movements are generally smaller in terms of time frame.

Amazon – ABCD patterns

Let’s take a look at Amazon. Amazon also had quite a handful of good ABCD patterns. Here we are on a weekly chart. There’s an ABCD pattern from 2016 to 2017. It’s a great stock.

Measured move calculation:

At the start, we got 390 points. I would expect from the pullback we also would get about 390 points. And you can see we got about 365.

When we take a look at the pullback at how the pullback came in – what was it?

case study on technical analysis

Well, you can see we came right into about 50% into that pullback and bounced at the 50%. Almost directly at the $500 price level.The stock made a classic move and what did we get later?

You got volume coming in on the break. Notice these high peaks at the highs we have the excellent volume on the bullish side. You did have this drawing up in volume slowly after the little pullback.

Then finally you got more massive buyers coming in the right after that. This stock looks like a classic ABCD pattern. Just like we’ve shown with Tesla and Apple. If you look at the monthly, you can see it from 2015.

GoPro Technical Analysis – ABCD Pattern

You could take about any stock, and we can do the same thing even with GoPro. As you start evaluating items take a look at a 2 or 3 day in this stock.

That way it’s going to be a little bit easier to evaluate it and see the chart. We look at GoPro, and we look at it to the upside. We could say this started very similar to Tesla. There’s consolidation pattern for a few months – July and August we moved sideways.

Then we had to come in volume. Exceptional bullish volume is coming into the stock. People got excited about it and then finally we had a slight little pullback.

We needed to take a gas break, and you can see the volume drawing up right there. Right under the stock, they’re drying up. And then finally we have more volume coming in and further extension of prices.

case study on technical analysis

We had a slight distribution at the top and then the stock continued to head lower. In this chart, you have the accumulation and the upward move.

We have an upward move of about 33 points. Then let’s look at how far the pullback was. The pullback came into (the lighter pullback) 23.6% and then the stock bounce. We went into a 23.6% Fibonacci sequence and then the stock bounce.

Overall the movement was right around 30 to 33 points. If we take the lows of that B point and we go to the highs, you can see we hit it nearly perfectly 33 points. Look at that, and there is your classic ABCD pattern. If you don’t know much about technical analysis and you want to keep it simple, you could do what I’ve shown you here.

This is what you need to do:

  • look for the A to B classic pattern
  • look for that volume to come in
  • wait for the drawing up of volume
  • get in on the C to D leg
  • take most of your profits as you approach closer to the D leg

This works the same way in reverse. And this is why GoPro is an excellent example. You can see it to the upside which you could also see it to the downside.

Let’s go into the moment when we’re getting into the stock, and it starts to sell off. And then the counter-trend bounce.

  • Can you calculate what’s going to happen?

Well, here as we have the stock moving lower you can see we moved down about 58 points from the highs. We also had this retracement right here to the upside.

We had 58 points; then we got a retracement of about 26 points. If you do this Fibonacci calculation, you can see we don’t hit this perfect at the 50% or 38.2%.

If you do it more around the distribution area rather than the wicks, you’ll get it a little closer. That’s because sometimes here was euphoric buying. It depends on the stock movement. But here when we do this calculation for 2015, you can see we’re hitting it right at 50%.

We have some resistance right there, drying up, trying to break higher. It couldn’t do it, so stocks continue to roll over.

  • What do I estimate?

As you go down, you’ll see what happens to the stock. We go 53, 54, 55 and we’ve got a price of $8. That is where we hit.

  • What’s going to happen to the stock?

We’re back into this accumulation stage, and often I find that they’re tough to break out of these ranges.

Sometimes it takes multiple years – 3, 5, 10 years. It’s difficult, but you can see the patterns here in this stock. We’re very classic when it comes to the ABCD to the upside and the ABCD to the downside.

I hope this was helpful for you in understanding these price movements. Keep in mind you’re looking for the ABCD pattern first. You’re looking for the swing points and volume.

As the volume starts picking up here was the selling pressure that picked up. Then we had a retracement with lighter volume. And then more selling volume picked up.

The selling pressure stayed there until we hit this low point in early 2016 with GoPro. Now we’re distributing sideways and continuing to sell these stocks short.

Looking at these evaluations, stocks, prices and ABCD patterns, you can see you don’t need a lot of fancy indicators to be able to evaluate a stock on a simple level.

However, there are other things that you’ll go in detail as you continue to get better. But if you’re getting started this is an excellent starting point for you to begin evaluating charts.

What If You Can’t Find ABCD Pattern?

If you go to a specific stock (PepsiCo) and you can’t find an ABCD pattern then move on to another stock.

I’ll show you this right here. Sometimes C and D leg is a little more extended.

case study on technical analysis

If you go to Goldman Sachs, you’ll notice the same thing. If you can’t find ABCD patterns move on to another stock. Especially in the more recent time frame because that’s where you’re trading with.

Maybe you’re trading in the more recent time frame, and you can’t find those ABCD patterns move on to another stock. That’s the case with Bank of America as well.

Important note: ABCD patterns are there, but they’re not there shining red lights at you. They’re not so obvious. You have to be the one that looks for them.

You have to be the one that shows up and listen to the stock. If you have this massive volume, that’s a vital sign. When you have a lot of volume coming in that usually helps find ABCD pattern.

What’s interesting is that the B to C might be sideways. Keep in mind that B to C doesn’t have to go down. It can also be sideways. You’re looking for an expansion move on these stocks. The targets don’t always get hit. It’s giving you some ideas and examples but look for those patterns. It doesn’t matter what company you’re looking for.

I hope that I’ve helped you when it comes to technical analysis case studies and ABCD patterns. Use everything you’ve seen here and keep practicing technical analysis.

Throughout this post, you’ve seen what the right way of understanding price movements, swing points, and volume is. Also, you’ve seen how to break apart a chart in details. That is crucial when it comes to technical analysis.

case study on technical analysis

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Technical Analysis

Table of contents, applying technical analysis, key assumptions of technical analysis, the basis of technical analysis, chart analysis basics, top-down technical analysis, focus on price, supply, demand, and price action, support/resistance, pictorial price history, assist with entry point, analyst bias, open to interpretation, always another level, trader's remorse, final thoughts, what is technical analysis, how can i learn technical analysis, what are the foundations of technical analysis, what is technical analysis.

Technical analysis has to do with forecasting future financial price movements based on past price movements. Think of technical analysis like weather forecasting—it doesn't result in absolute predictions. Instead, technical analysis can help investors anticipate what is “likely” to happen to prices over time.

Technical analysis can be applied to stocks, indexes, commodities, futures, or any tradable instrument where the price is influenced by supply and demand. Price data (or, as John Murphy calls it, “market action”) refers to any combination of the open, high, low, close, volume, or open interest for a given security over a specific timeframe. The timeframe can be based on intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes, or hourly), daily, weekly, or monthly price data, lasting a few hours or many years.

Technical analysis can be applied to charts that show price action over time. The chart below shows a weekly chart of Alphabet Inc. (GOOGL). A weekly chart provides a long-term view of price movement. In the chart of GOOGL, you can see an uptrend and downtrend.

Alphabet Inc. (GOOGL) technical analysis weekly chart from StockCharts.com

Below is a daily chart of GOOGL, which shows a shorter-term view of the stock's price action.

Alphabet Inc. (GOOGL) technical analysis daily chart from StockCharts.com

Technical analysis can be applied to securities where the price is influenced by the forces of supply and demand. When other forces influence the price of a security, technical analysis may not work well. To be successful, technical analysis makes three key assumptions about the securities that are being analyzed:

  • Liquidity. Heavily-traded stocks allow investors to trade quickly because there are many buyers and sellers. Thinly-traded stocks are more difficult to trade because there are few buyers or sellers. So, if you're trying to trade a thinly traded stock, you may have to change your entry or exit price considerably to make a trade. In addition, low-liquidity stocks often trade at a low price (sometimes less than a penny per share), which means that their prices are easier to manipulate. These outside forces acting on thinly-traded stocks make them unsuitable for technical analysis.
  • No Artificial Price Changes. Splits, dividends, and distributions are the most common “culprits” for artificial price changes. Though there's no difference in the value of the investment, artificial price changes can dramatically affect the price chart and make technical analysis difficult to apply. This kind of price influence from outside sources can be easily addressed by adjusting the historical data before the price change.
  • No Extreme News. Technical analysis cannot predict extreme events, such as a change in management, regulatory changes, and geopolitical events. When the forces of “extreme news” influence price, technicians have to wait patiently until the chart settles down and starts to reflect the “new normal” that results from such news.

It's important to determine whether or not a security meets these three requirements before applying technical analysis. That's not to say that analysis of any stock whose price is influenced by one of these outside forces is useless, but it will affect the accuracy of that analysis.

At the turn of the century, the Dow Theory laid the foundations for what would later become modern technical analysis. Dow Theory wasn't presented as one complete amalgamation but rather pieced together from the writings of Charles Dow over several years. Of the many theorems put forth by Dow, three stand out:

  • Price discounts everything
  • Price movements are not random
  • “What” is more important than “Why.”

Let's look at each of these.

Price Discounts Everything

This theorem is similar to the strong and semi-strong forms of market efficiency. Technical analysts believe that the current price fully reflects all information. Because all information is already reflected in the price, it represents the fair value and should form the basis for analysis. After all, the market price reflects the sum knowledge of all participants—investors, portfolio managers, buy-side analysts, sell-side analysts, market strategists, technical analysts, fundamental analysts, and many others. It would be folly to disagree with the price set by such an impressive array of people with impeccable credentials. Technical analysis utilizes the information captured by the price to interpret what the market is saying with the purpose of forming a view of the future.

Price Movements Are Not Totally Random

Most technicians agree that prices trend. Yet, most technicians also acknowledge that there are times when prices don't trend. If prices were always random, it would be difficult to make money using technical analysis. In his book, Schwager on Futures: Technical Analysis , Jack Schwager states:

“One way of viewing the situation is that markets may witness extended periods of random fluctuation, interspersed with shorter periods of nonrandom behavior… The goal of the chart analyst is to identify those periods (i.e. major trends).” (p. 12)

Trending and trading ranges in Oracle (ORCL) example chart from StockCharts.com

A technical analyst believes that it's possible to identify a trend, invest, or trade based on the trend and make money as the trend unfolds. Because technical analysis can be applied to different timeframes, it's possible to spot short- and long-term trends.

The chart of ORCL illustrates Schwager's view on the nature of the trend. The broad trend is up, but it's also interspersed with trading ranges. In between the trading ranges are smaller uptrends within the larger uptrend. When the stock price breaks above the trading range, the uptrend is renewed. When the stock price breaks below the low of the trading range, a downtrend begins. In the chart above, price broke below the trading range, but it was a short-lived downtrend. The uptrend resumed until the next trading range.

"What" Is More Important Than "Why"

In his book, The Psychology of Technical Analysis , Tony Plummer paraphrases Oscar Wilde by stating, “A technical analyst knows the price of everything, but the value of nothing”. Technicians, as technical analysts are called, are only concerned with two things:

  • What is the current price?
  • What is the history of the price movement?

The price of a security is the end result of the battle between the forces of supply and demand. The objective of the analysis is to forecast the direction of the future price. By focusing on price, technical analysis represents a direct approach. Fundamentalists are concerned with why the price is what it is. For technicians, the why portion of the equation is too broad and many times the fundamental reasons given are highly suspect. Technicians believe it's best to concentrate on what and never mind why. Why did the price go up? There were simply more buyers (demand) than sellers (supply). After all, the value of any asset is only what someone is willing to pay for it. Who needs to know why?

Technical Analysis: General Steps

Many technicians apply a top-down approach that begins with broad-based market analysis, then narrows down to specific sectors/industries, and ultimately analyzes individual stocks.

The beauty of technical analysis lies in its versatility. Because the principles of technical analysis are universally applicable, each of these levels of analysis can be performed using the same theoretical background. You don't need an economics degree to analyze a market index chart. You don't need to be a CPA to analyze a stock chart. Charts are charts. It doesn't matter if the timeframe is two days or two years. It doesn't matter whether you're looking at a stock, market index, or commodity. The technical principles of support, resistance, trend, trading range, and other aspects can be applied to any chart. As simple as this may sound, technical analysis is far from easy. Success requires serious study, dedication, and an open mind.

Technical analysis can be complex or straightforward. It depends on how you use it. The example below shows some basic principles of chart analysis. Since you're probably interested in buying stocks, the focus will be on spotting bullish situations in this chart.

case study on technical analysis

Overall Trend. The first step is to identify the overall trend. You can do this with trend lines, moving averages , or peak/trough analysis. For example, as long as price remains above its upward-sloping trend line or specific moving averages, the trend is up. Similarly, the trend is up as long as higher lows form on pullbacks and higher highs form on advances.

Support . Congestion areas and previous lows below the current price mark the support levels. A break below support would be considered bearish and detrimental to the overall trend.

Resistance . Congestion areas and previous highs above the current price mark resistance levels. A break above resistance would be considered bullish and positive for the overall trend.

Momentum . Momentum is usually measured with an oscillator such as MACD . If MACD is above its 9-day EMA (exponential moving average ) or positive, then momentum will be considered bullish, or at least improving.

Buying/Selling Pressure. For stocks and indices with volume figures available, an indicator that uses volume is used to measure buying or selling pressure. When Chaikin Money Flow is above zero, buying pressure is dominant. Selling pressure is dominant when it is below zero.

Relative Strength. The price relative is plotted as a line that divides the security by a benchmark. For stocks, it's usually the stock price divided by the S&P 500. The relative strength plot indicates if the stock is outperforming (rising) or underperforming (falling) the major index.

The final step is to synthesize the above analysis to ascertain the following:

  • Strength of the current trend.
  • Maturity or stage of the current trend.
  • Reward-to-risk ratio of a new position.
  • Potential entry levels for a new long position.

While the example above analyzed the chart for an individual stock, many of these techniques can be applied to charts for a sector or broad market indexes.

Many technicians employ a top-down approach to technical analysis, starting with broad-based macro analysis and ending with a more focused/micro perspective:

  • Broad market analysis using major indices such as the S&P 500, Dow Industrials, NASDAQ and NYSE Composite.
  • Sector analysis to identify the strongest and weakest groups within the broader market.
  • Individual stock analysis to identify the strongest and weakest stocks within select groups.

For each segment (market, sector, and stock), an investor would analyze long-term and short-term charts to find those that meet specific criteria. Analysis will first consider the market in general, perhaps the S&P 500. If the broader market were considered to be in bullish mode, analysis would proceed to a selection of sector charts.

Those sectors that show the most promise would be singled out for individual stock analysis. Once the sector list is narrowed to 3-4 industry groups, individual stock selection can begin.

With a selection of 10-20 stock charts from each industry, a selection of 3-4 of the most promising stocks in each group can be made. How many stocks or industry groups make the final cut will depend on the strictness of the criteria set forth. Under this scenario, we would be left with 9-12 stocks from which to choose. These stocks could even be broken down further to find the 3-4 that are the strongest of the strong.

Strengths of Technical Analysis

If the objective is to predict the future price, then it makes sense to focus on price movements. Price movements usually precede fundamental developments. By focusing on price action, technicians are automatically focusing on the future. The market is considered a leading indicator and generally leads the economy by six to nine months. It makes sense to look directly at the price movements to keep pace with the market. More often than not, change is a subtle beast. Even though the market is prone to sudden knee-jerk reactions, hints usually develop before significant moves. A technician will refer to periods of accumulation as evidence of an impending advance and periods of distribution as evidence of an impending decline.

Many technicians use the open, high, low and close when analyzing the price action of a security. There is information to be gleaned from each bit of information. Separately, these will not be able to tell much. However, taken together, the open, high, low, and close reflect forces of supply and demand.

Boeing Co. (BA) Technical Analysis example chart from StockCharts.com

The annotated example above shows a stock that opened with a gap up. Before the open, the number of buy orders exceeded the number of sell orders and the price was raised to attract more sellers. Demand was brisk from the start. The intraday high reflects the strength of demand (buyers). The intraday low reflects the availability of supply (sellers). The close represents the final price the buyers and sellers agreed upon. In this case, the close is well below the high and much closer to the low. This tells us that even though demand (buyers) was strong during the day, supply (sellers) ultimately prevailed, forcing the price back down. Even after this selling pressure, the close remained above the open. Looking at price action over an extended period, you can see the battle between supply and demand unfold. In its most basic form, higher prices reflect increased demand, and lower prices reflect increased supply.

Simple chart analysis can help identify support and resistance levels. These are usually marked by periods of congestion (trading range) where the prices move within a confined range for an extended period, telling us that the forces of supply and demand are deadlocked. When prices move out of the trading range, it signals that either supply or demand has started to get the upper hand. If prices move above the upper band of the trading range, then demand is winning. If prices move below the lower band, then supply is winning.

Even if you are a tried and true fundamental analyst, a price chart can offer plenty of valuable information. The price chart is an easy-to-read historical account of a security's price movement over a period of time. Charts are much easier to read than a table of numbers. On most stock charts, volume bars are displayed at the bottom. With this historical picture, it is easy to identify the following:

  • Reactions prior to and after important events.
  • Past and present volatility.
  • Historical volume or trading levels.
  • Relative strength of a stock versus the overall market.

Technical analysis can help with timing a proper entry point. Some analysts use fundamental analysis to decide what to buy and technical analysis to decide when to buy. It is no secret that timing can play an important role in performance. Technical analysis can help spot demand (support) and supply (resistance) levels as well as breakouts. Simply waiting for a breakout above resistance or buying near support levels can improve returns.

It is also important to know a stock's price history. If a stock you thought was great for the last 2 years has traded flat for those two years, it would appear that Wall Street has a different opinion. If a stock has already advanced significantly, it may be prudent to wait for a pullback. Or, if the stock is trending lower, it might pay to wait for buying interest and a trend reversal.

Weaknesses of Technical Analysis

Just as with fundamental analysis, technical analysis is subjective and our personal biases can be reflected in the analysis. It is important to be aware of these biases when analyzing a chart. If the analyst is a perpetual bull, then a bullish bias will overshadow the analysis. On the other hand, if the analyst is a disgruntled perma-bear, then the analysis will probably have a bearish tilt.

Furthering the bias argument is the fact that technical analysis is open to interpretation. Even though there are standards, many times two technicians will look at the same chart and paint two different scenarios or see different patterns. Both will be able to come up with logical support and resistance levels as well as key breaks to justify their position. While this can be frustrating, it should be pointed out that technical analysis is more like an art than a science, akin to economics. Is the cup half-empty or half-full? It is all in the eye of the beholder.

Technical analysis has been criticized for being too late. By the time the trend is identified, a substantial portion of the move has already taken place. After such a large move, the reward to risk ratio is not great. Lateness is a particular criticism of Dow Theory .

Even after a new trend has been identified, there is always another “important” level close at hand. Technicians have been accused of sitting on the fence and never taking an unqualified stance. Even if they are bullish, there is always some indicator or some level that will qualify their opinion.

Not all technical signals and patterns work. When you begin to study technical analysis, you will come across an array of patterns and indicators with rules to match. For instance: A sell signal is given when the neckline of a head and shoulders pattern is broken. Even though this is a rule, it is not steadfast and can be subject to other factors such as volume and momentum. In that same vein, what works for one particular stock may not work for another. A 50-day moving average may work great to identify support and resistance for IBM, but a 70-day moving average may work better for Yahoo. Even though many principles of technical analysis are universal, each security will have its own idiosyncrasies.

Technical analysts consider the market to be 80% psychological and 20% logical. Fundamental analysts consider the market to be 20% psychological and 80% logical. Psychological or logical may be open for debate, but when it comes to the price of a security, there's nothing to question. It's available for all to see. Nobody doubts its legitimacy. The price set by the market reflects the sum knowledge of all participants. We're not dealing with lightweights here. These participants have considered (discounted) everything under the sun and settled on a price to buy or sell. These are the forces of supply and demand at work. By examining price action to determine which force is prevailing, technical analysis focuses directly on the bottom line: What is the price? Where has it been? Where is it going?

Even though there are some universal principles and rules that can be applied, remember that technical analysis is more of an art form than a science. As an art form, it's subject to interpretation. However, it's also flexible in its approach, and each investor should use only that which suits his or her style. Developing a style takes time, effort, and dedication, but the rewards can be significant.

Technical Analysis FAQs

Technical analysis helps investors and traders anticipate what will happen to prices. It has to do with forecasting future financial price movements based on past price movements. Technical analysis can be applied to stocks, indexes, commodities, futures, currencies, or any tradable asset where price is influenced by supply and demand.

Technical analysis is versatile. You can make it as simple or as complex as you want. But there are some basics any trader or investor should learn. They involve the following:

  • Identify the overall trend. Is price trending up, down, or moving sideways? You can use trendlines, moving averages , or other tools and indicators to help determine which way prices are moving.
  • Identify support and resistance levels. Congestion areas and previous lows below the prevailing price are support levels, whereas congestion areas and previous highs above the prevailing price are resistance levels. A break below support or above resistance can indicate a trend's direction.
  • Identify momentum, buying/selling pressure, and relative strength. Use indicators such as the MACD , Chaikin Money Flow , and relative strength to identify these characteristics.
  • Strength of the trend
  • Maturity or stage of the trend
  • Reward-to-risk ratio of a position
  • Potential entry levels for a position
  • Price movements are not totally random
  • “What” is more important than “Why”

case study on technical analysis

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case study on technical analysis

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Technical Analysis

Technicians (sometimes called chartists) are only interested in the price movements in the market. Despite all the fancy and exotic tools it employs, technical analysis really just studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future. In other words, technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components. If you understand the benefits and limitations of technical analysis, it can give you a new set of tools or skills that will enable you to be a better trader or investor. Page 1 of 42) Copyright © 2005, Investopedia.

com – All rights reserved. Investopedia. com – Your Source For Investing Education. In this tutorial, we’ll introduce you to the subject of technical analysis. It’s a broad topic, so we’ll just cover the basics, providing you with the foundation you’ll need to understand more advanced concepts down the road. The Basic Assumptions What Is Technical Analysis? Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume.

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Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. Just as there are many investment styles on the fundamental side, there are also many different types of technical traders. Some rely on chart patterns, others use technical indicators and oscillators, and most use some combination of the two. In any case, technical analysts’ exclusive use of historical price and volume data is what separates them from their fundamental counterparts.

Unlike fundamental analysts, technical analysts don’t care whether a stock is undervalued – the only thing that matters is a security’s past trading data and what information this data can provide about where the security might move in the future.

The field of technical analysis is based on three assumptions: 1. 2. 3. The market discounts everything. Price moves in trends.

History tends to repeat itself. 1. The Market Discounts Everything A major criticism of technical analysis is that it only considers price movement, ignoring the fundamental factors of the company.

However, technical analysis assumes that, at any given time, a stock’s price reflects everything that has or could affect the company – including fundamental factors. Technical analysts believe that the company’s fundamentals, along with broader economic factors and market psychology, are all priced into the stock, removing the need to actually consider these factors separately.

This only leaves the analysis of price movement, which technical theory views as a product of the supply and demand for a particular stock in the market. 2. Price Moves in Trends In technical analysis, price movements are believed to follow trends.

This means that after a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it. Most technical trading strategies are based on this assumption.

This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default. asp (Page 2 of 42) Copyright © 2006, Investopedia. com – All rights reserved.

Investopedia. com – Your Source For Investing Education. 3. History Tends To Repeat Itself Another important idea in technical analysis is that history tends to repeat itself, mainly in terms of price movement.

The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistent reaction to similar market stimuli over time.

Technical analysis uses chart patterns to analyze market movements and understand trends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves. Not Just for Stocks Technical analysis can be used on any security with historical trading data.

This includes stocks, futures and commodities, fixed-income securities, forex, etc. In this tutorial, we’ll usually analyze stocks in our examples, but keep in mind that these concepts can be applied to any type of security.

In fact, technical analysis is more frequently associated with commodities and forex, where the participants are predominantly traders. Now that you understand the philosophy behind technical analysis, we’ll get into explaining how it really works. One of the best ways to understand what technical analysis is (and is not) is to compare it to fundamental analysis.

We’ll do this in the next section. For further reading, check out Defining Active Trading, Day Trading Strategies For Beginners and What Can Investors Learn From Traders?. Fundamental Vs.

Technical Analysis Technical analysis and fundamental analysis are the two main schools of thought in the financial markets. As we’ve mentioned, technical analysis looks at the price movement of a security and uses this data to predict its future price movements. Fundamental analysis, on the other hand, looks at economic factors, known as fundamentals.

Let’s get into the details of how these two approaches differ, the criticisms against technical analysis and how technical and fundamental analysis can be used together to analyze securities. The Differences Charts vs. Financial Statements At the most basic level, a technical analyst approaches a security from the charts, while a fundamental analyst starts with the financial statements.

(For further reading, see Introduction To Fundamental Analysis and Advanced This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default. asp (Page 3 of 42) Copyright © 2006, Investopedia. com – All rights reserved.

Investopedia. com – Your Source For Investing Education. Financial Statement Analysis. ) By looking at the balance sheet, cash flow statement and income statement, a fundamental analyst tries to determine a company’s value. In financial terms, an analyst attempts to measure a company’s intrinsic value.

In this approach, investment decisions are fairly easy to make – if the price of a stock trades below its intrinsic value, it’s a good investment. Although this is an oversimplification (fundamental analysis goes beyond just the financial statements) for the purposes of this tutorial, this simple tenet holds true.

Technical traders, on the other hand, believe there is no reason to analyze a company’s fundamentals because these are all accounted for in the stock’s price. Technicians believe that all the information they need about a stock can be found in its charts. Time Horizon Fundamental analysis takes a relatively long-term approach to analyzing the market compared to technical analysis. While technical analysis can be used on a timeframe of weeks, days or even minutes, fundamental analysis often looks at data over a number of years.

The different timeframes that these two approaches use is a result of the nature of the investing style to which they each adhere. It can take a long time for a company’s value to be reflected in the market, so when a fundamental analyst estimates intrinsic value, a gain is not realized until the stock’s market price rises to its “correct” value. This type of investing is called value investing and assumes that the short-term market is wrong, but that the price of a particular stock will correct itself over the long run. This “long run” can represent a timeframe of as long as several years, in some cases. For more insight, read Warren Buffett: How He Does It and What Is Warren Buffett’s Investing Style? ) Furthermore, the numbers that a fundamentalist analyzes are only released over long periods of time.

Financial statements are filed quarterly and changes in earnings per share don’t emerge on a daily basis like price and volume information. Also remember that fundamentals are the actual characteristics of a business. New management can’t implement sweeping changes overnight and it takes time to create new products, marketing campaigns, supply chains, etc.

Part of the reason that fundamental analysts use a long-term timeframe, therefore, is because the data they use to analyze a stock is generated much more slowly than the price and volume data used by technical analysts. Trading Versus Investing Not only is technical analysis more short term in nature that fundamental analysis, but the goals of a purchase (or sale) of a stock are usually different for This tutorial can be found at: http://www.

investopedia. com/university/technicalanalysis/default. asp (Page 4 of 42) Copyright © 2006, Investopedia. com – All rights reserved. Investopedia. om – Your Source For Investing Education.

each approach. In general, technical analysis is used for a trade, whereas fundamental analysis is used to make an investment. Investors buy assets they believe can increase in value, while traders buy assets they believe they can sell to somebody else at a greater price. The line between a trade and an investment can be blurry, but it does characterize a difference between the two schools. The Critics Some critics see technical analysis as a form of black magic.

Don’t be surprised to see them question the validity of the discipline to the point where they mock its supporters.

In fact, technical analysis has only recently begun to enjoy some mainstream credibility. While most analysts on Wall Street focus on the fundamental side, just about any major brokerage now employs technical analysts as well. Much of the criticism of technical analysis has its roots in academic theory specifically the efficient market hypothesis (EMH). This theory says that the market’s price is always the correct one – any past trading information is already reflected in the price of the stock and, therefore, any analysis to find undervalued securities is useless.

There are three versions of EMH. In the first, called weak form efficiency, all past price information is already included in the current price. According to weak form efficiency, technical analysis can’t predict future movements because all past information has already been accounted for and, therefore, analyzing the stock’s past price movements will provide no insight into its future movements. In the second, semi-strong form efficiency, fundamental analysis is also claimed to be of little use in finding investment opportunities.

The third is strong form efficiency, which states that all information in the market is accounted for in a stock’s price and neither technical nor fundamental analysis can provide investors with an edge.

The vast majority of academics believe in at least the weak version of EMH, therefore, from their point of view, if technical analysis works, market efficiency will be called into question. (For more insight, read What Is Market Efficiency? and Working Through The Efficient Market Hypothesis. ) There is no right answer as to who is correct.

There are arguments to be made on both sides and, therefore, it’s up to you to do the homework and determine your own philosophy. Can They Co-Exist? Although technical analysis and fundamental analysis are seen by many as polar opposites – the oil and water of investing – many market participants have experienced great success by combining the two.

For example, some fundamental analysts use technical analysis techniques to figure out the best time to enter into an undervalued security. Oftentimes, this situation occurs when This tutorial can be found at: http://www. investopedia. om/university/technicalanalysis/default. asp (Page 5 of 42) Copyright © 2006, Investopedia. com – All rights reserved.

Investopedia. com – Your Source For Investing Education. the security is severely oversold. By timing entry into a security, the gains on the investment can be greatly improved. Alternatively, some technical traders might look at fundamentals to add strength to a technical signal. For example, if a sell signal is given through technical patterns and indicators, a technical trader might look to reaffirm his or her decision by looking at some key fundamental data.

Oftentimes, having both the fundamentals and technicals on your side can provide the best-case scenario for a trade. While mixing some of the components of technical and fundamental analysis is not well received by the most devoted groups in each school, there are certainly benefits to at least understanding both schools of thought. In the following sections, we’ll take a more detailed look at technical analysis. The Use Of Trend One of the most important concepts in technical analysis is that of trend.

The meaning in finance isn’t all that different from the general definition of the term – a trend is really nothing more than the general direction in which a security or market is headed.

Take a look at the chart below: Figure 1 This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default. asp (Page 6 of 42) Copyright © 2006, Investopedia. com – All rights reserved. Investopedia.

com – Your Source For Investing Education. It isn’t hard to see that the trend in Figure 1 is up. However, it’s not always this easy to see a trend:

Figure 2 There are lots of ups and downs in this chart, but there isn’t a clear indication of which direction this security is headed. A More Formal Definition Unfortunately, trends are not always easy to see. In other words, defining a trend goes well beyond the obvious. In any given chart, you will probably notice that prices do not tend to move in a straight line in any direction, but rather in a series of highs and lows.

In technical analysis, it is the movement of the highs and lows that constitutes a trend. For example, an uptrend is classified as a series of higher highs and higher ows, while a downtrend is one of lower lows and lower highs. This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default. asp (Page 7 of 42) Copyright © 2006, Investopedia.

com – All rights reserved. Investopedia. com – Your Source For Investing Education. Figure 3 Figure 3 is an example of an uptrend. Point 2 in the chart is the first high, which is determined after the price falls from this point.

Point 3 is the low that is established as the price falls from the high. For this to remain an uptrend, each successive low must not fall below the previous lowest point or the trend is deemed a reversal.

Types of Trend There are three types of trend: • • • Uptrends Downtrends Sideways/Horizontal Trends As the names imply, when each successive peak and trough is higher, it’s referred to as an upward trend. If the peaks and troughs are getting lower, it’s a downtrend. When there is little movement up or down in the peaks and troughs, it’s a sideways or horizontal trend. If you want to get really technical, you might even say that a sideways trend is actually not a trend on its own, but a lack of a well-defined trend in either direction.

In any case, the market can really only trend in these three ways: up, down or nowhere. For more insight, see Peak-AndTrough Analysis. ) Trend Lengths Along with these three trend directions, there are three trend classifications. A trend of any direction can be classified as a long-term trend, intermediate trend or a short-term trend. In terms of the stock market, a major trend is generally categorized as one lasting longer than a year. An intermediate trend is considered to last between one and three months and a near-term trend is anything less than a month.

A long-term trend is composed of several intermediate trends, which often move against the direction of the major trend.

If the major trend is upward and there is a downward correction in price movement followed by a continuation of the uptrend, the correction is considered to be an intermediate trend. The short-term trends are components of both major and intermediate trends. Take a look a Figure 4 to get a sense of how these three trend lengths might look. This tutorial can be found at: http://www.

investopedia. com/university/technicalanalysis/default. asp (Page 8 of 42) Copyright © 2006, Investopedia. com – All rights reserved. Investopedia.

com – Your Source For Investing Education. Figure 4

When analyzing trends, it is important that the chart is constructed to best reflect the type of trend being analyzed. To help identify long-term trends, weekly charts or daily charts spanning a five-year period are used by chartists to get a better idea of the long-term trend. Daily data charts are best used when analyzing both intermediate and short-term trends. It is also important to remember that the longer the trend, the more important it is; for example, a one-month trend is not as significant as a five-year trend. (To read more, see Short-, Intermediate- And Long-Term Trends.

Trendlines A trendline is a simple charting technique that adds a line to a chart to represent the trend in the market or a stock. Drawing a trendline is as simple as drawing a straight line that follows a general trend. These lines are used to clearly show the trend and are also used in the identification of trend reversals. As you can see in Figure 5, an upward trendline is drawn at the lows of an upward trend. This line represents the support the stock has every time it moves from a high to a low.

Notice how the price is propped up by this support.

This type of trendline helps traders to anticipate the point at which a stock’s price will begin moving upwards again. Similarly, a downward trendline is drawn at the highs of the downward trend. This line represents the resistance level that a stock faces every time the price moves from a low to a high. (To read more, see Support & Resistance Basics and Support And Resistance Zones – Part 1 and Part 2.

) This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default. asp (Page 9 of 42) Copyright © 2006, Investopedia. com – All rights reserved. Investopedia.

om – Your Source For Investing Education. Figure 5 Channels A channel, or channel lines, is the addition of two parallel trendlines that act as strong areas of support and resistance. The upper trendline connects a series of highs, while the lower trendline connects a series of lows. A channel can slope upward, downward or sideways but, regardless of the direction, the interpretation remains the same. Traders will expect a given security to trade between the two levels of support and resistance until it breaks beyond one of the levels, in which case traders can expect a sharp move in the direction of the break.

Along with clearly displaying the trend, channels are mainly used to illustrate important areas of support and resistance. Figure 6 This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default. asp (Page 10 of 42) Copyright © 2006, Investopedia. com – All rights reserved.

Investopedia. com – Your Source For Investing Education. Figure 6 illustrates a descending channel on a stock chart; the upper trendline has been placed on the highs and the lower trendline is on the lows. The price has bounced off of these lines several times, and has remained range-bound for several months.

As long as the price does not fall below the lower line or move beyond the upper resistance, the range-bound downtrend is expected to continue. The Importance of Trend It is important to be able to understand and identify trends so that you can trade with rather than against them.

Two important sayings in technical analysis are “the trend is your friend” and “don’t buck the trend,” illustrating how important trend analysis is for technical traders. Support And Resistance Once you understand the concept of a trend, the next major concept is that of support and resistance.

You’ll often hear technical analysts talk about the ongoing battle between the bulls and the bears, or the struggle between buyers (demand) and sellers (supply). This is revealed by the prices a security seldom moves above (resistance) or below (support). Figure 1 As you can see in Figure 1, support is the price level through which a stock or market seldom falls (illustrated by the blue arrows).

Resistance, on the other hand, is the price level that a stock or market seldom surpasses (illustrated by the red arrows). This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default. sp (Page 11 of 42) Copyright © 2006, Investopedia.

com – All rights reserved. Investopedia. com – Your Source For Investing Education. Why Does it Happen? These support and resistance levels are seen as important in terms of market psychology and supply and demand. Support and resistance levels are the levels at which a lot of traders are willing to buy the stock (in the case of a support) or sell it (in the case of resistance). When these trendlines are broken, the supply and demand and the psychology behind the stock’s movements is thought to have shifted, in which case new levels of support and resistance will likely be established.

Round Numbers and Support and Resistance One type of universal support and resistance that tends to be seen across a large number of securities is round numbers. Round numbers like 10, 20, 35, 50, 100 and 1,000 tend be important in support and resistance levels because they often represent the major psychological turning points at which many traders will make buy or sell decisions. Buyers will often purchase large amounts of stock once the price starts to fall toward a major round number such as $50, which makes it more difficult for shares to fall below the level.

On the other hand, sellers start to sell off a stock as it moves toward a round number peak, making it difficult to move past this upper level as well. It is the increased buying and selling pressure at these levels that makes them important points of support and resistance and, in many cases, major psychological points as well.

Role Reversal Once a resistance or support level is broken, its role is reversed. If the price falls below a support level, that level will become resistance. If the price rises above a resistance level, it will often become support.

As the price moves past a level of support or resistance, it is thought that supply and demand has shifted, causing the breached level to reverse its role. For a true reversal to occur, however, it is important that the price make a strong move through either the support or resistance.

(For further reading, see Retracement Or Reversal: Know The Difference. ) Figure 2 This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default. asp (Page 12 of 42) Copyright © 2006, Investopedia.

com – All rights reserved. Investopedia. om – Your Source For Investing Education. For example, as you can see in Figure 2, the dotted line is shown as a level of resistance that has prevented the price from heading higher on two previous occasions (Points 1 and 2). However, once the resistance is broken, it becomes a level of support (shown by Points 3 and 4) by propping up the price and preventing it from heading lower again.

Many traders who begin using technical analysis find this concept hard to believe and don’t realize that this phenomenon occurs rather frequently, even with some of the most well-known companies.

For example, as you can see in Figure 3, this phenomenon is evident on the Wal-Mart Stores Inc. (WMT) chart between 2003 and 2006. Notice how the role of the $51 level changes from a strong level of support to a level of resistance. Figure 3 In almost every case, a stock will have both a level of support and a level of resistance and will trade in this range as it bounces between these levels. This is most often seen when a stock is trading in a generally sideways manner as the price moves through successive peaks and troughs, testing resistance and support.

The Importance of Support and Resistance Support and resistance analysis is an important part of trends because it can be used to make trading decisions and identify when a trend is reversing. For example, if a trader identifies an important level of resistance that has been tested several times but never broken, he or she may decide to take profits as the security moves toward this point because it is unlikely that it will move past this level. This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default. asp (Page 13 of 42) Copyright © 2006, Investopedia.

om – All rights reserved. Investopedia. com – Your Source For Investing Education. Support and resistance levels both test and confirm trends and need to be monitored by anyone who uses technical analysis. As long as the price of the share remains between these levels of support and resistance, the trend is likely to continue. It is important to note, however, that a break beyond a level of support or resistance does not always have to be a reversal.

For example, if prices moved above the resistance levels of an upward trending channel, the trend has accelerated, not reversed.

This means that the price appreciation is expected to be faster than it was in the channel. Being aware of these important support and resistance points should affect the way that you trade a stock. Traders should avoid placing orders at these major points, as the area around them is usually marked by a lot of volatility. If you feel confident about making a trade near a support or resistance level, it is important that you follow this simple rule: do not place orders directly at the support or resistance level. This is because in many cases, the price never actually reaches the whole number, but flirts with it instead.

So if you’re bullish on a stock that is moving toward an important support level, do not place the trade at the support level. Instead, place it above the support level, but within a few points. On the other hand, if you are placing stops or short selling, set up your trade price at or below the level of support. The Importance Of Volume To this point, we’ve only discussed the price of a security. While price is the primary item of concern in technical analysis, volume is also extremely important. What is Volume? Volume is simply the number of shares or contracts that trade over a given period of time, usually a day.

The higher the volume, the more active the security. To determine the movement of the volume (up or down), chartists look at the volume bars that can usually be found at the bottom of any chart. Volume bars illustrate how many shares have traded per period and show trends in the same way that prices do. (For further reading, see Price Patterns – Part 3, Gauging Support And Resistance With Price By Volume. ) This tutorial can be found at: http://www.

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Why Volume is Important Volume is an important aspect of technical analysis because it is used to confirm trends and chart patterns. Any price movement up or down with relatively high volume is seen as a stronger, more relevant move than a similar move with weak volume. Therefore, if you are looking at a large price movement, you should also examine the volume to see whether it tells the same story. Say, for example, that a stock jumps 5% in one trading day after being in a long downtrend. Is this a sign of a trend reversal?

This is where volume helps traders. If volume is high during the day relative to the average daily volume, it is a sign that the reversal is probably for real.

On the other hand, if the volume is below average, there may not be enough conviction to support a true trend reversal. (To read more, check out Trading Volume – Crowd Psychology. ) Volume should move with the trend. If prices are moving in an upward trend, volume should increase (and vice versa). If the previous relationship between volume and price movements starts to deteriorate, it is usually a sign of weakness in the trend.

For example, if the stock is in an uptrend but the up trading days are marked with lower volume, it is a sign that the trend is starting to lose its legs and may soon end.

When volume tells a different story, it is a case of divergence, which refers to a contradiction between two different indicators. The simplest example of divergence is a clear upward trend on declining volume. (For additional insight, read Divergences, Momentum And Rate Of Change. ) Volume and Chart Patterns The other use of volume is to confirm chart patterns. Patterns such as head and This tutorial can be found at: http://www.

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shoulders, triangles, flags and other price patterns can be confirmed with volume, a process which we’ll describe in more detail later in this tutorial. In most chart patterns, there are several pivotal points that are vital to what the chart is able to convey to chartists. Basically, if the volume is not there to confirm the pivotal moments of a chart pattern, the quality of the signal formed by the pattern is weakened.

Volume Precedes Price Another important idea in technical analysis is that price is preceded by volume. Volume is closely monitored by technicians and chartists to form ideas on upcoming trend reversals.

If volume is starting to decrease in an uptrend, it is usually a sign that the upward run is about to end. Now that we have a better understanding of some of the important factors of technical analysis, we can move on to charts, which help to identify trading opportunities in prices movements. What Is A Chart? In technical analysis, charts are similar to the charts that you see in any business setting.

A chart is simply a graphical representation of a series of prices over a set time frame. For example, a chart may show a stock’s price movement over a one-year period, where each point on the graph represents the closing price for each day the stock is traded: Figure 1 Figure 1 provides an example of a basic chart. It is a representation of the price This tutorial can be found at: http://www.

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movements of a stock over a 1. year period. The bottom of the graph, running horizontally (x-axis), is the date or time scale. On the right hand side, running vertically (y-axis), the price of the security is shown. By looking at the graph we see that in October 2004 (Point 1), the price of this stock was around $245, whereas in June 2005 (Point 2), the stock’s price is around $265.

This tells us that the stock has risen between October 2004 and June 2005. Chart Properties There are several things that you should be aware of when looking at a chart, as these factors can affect the information that is provided.

They include the time scale, the price scale and the price point properties used. The Time Scale The time scale refers to the range of dates at the bottom of the chart, which can vary from decades to seconds. The most frequently used time scales are intraday, daily, weekly, monthly, quarterly and annually.

The shorter the time frame, the more detailed the chart. Each data point can represent the closing price of the period or show the open, the high, the low and the close depending on the chart used. Intraday charts plot price movement within the period of one day.

This means that the time scale could be as short as five minutes or could cover the whole trading day from the opening bell to the closing bell. Daily charts are comprised of a series of price movements in which each price point on the chart is a full day’s trading condensed into one point. Again, each point on the graph can be simply the closing price or can entail the open, high, low and close for the stock over the day.

These data points are spread out over weekly, monthly and even yearly time scales to monitor both short-term and intermediate trends in price movement.

Weekly, monthly, quarterly and yearly charts are used to analyze longer term trends in the movement of a stock’s price. Each data point in these graphs will be a condensed version of what happened over the specified period. So for a weekly chart, each data point will be a representation of the price movement of the week. For example, if you are looking at a chart of weekly data spread over a five-year period and each data point is the closing price for the week, the price that is plotted will be the closing price on the last trading day of the week, which is usually a Friday.

The Price Scale and Price Point Properties The price scale is on the right-hand side of the chart. It shows a stock’s current price and compares it to past data points. This may seem like a simple concept in that the price scale goes from lower prices to higher prices as you move along This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default.

asp (Page 17 of 42) Copyright © 2006, Investopedia. com – All rights reserved. Investopedia. com – Your Source For Investing Education. the scale from the bottom to the top.

The problem, however, is in the structure of the scale itself. A scale can either be constructed in a linear (arithmetic) or logarithmic way, and both of these options are available on most charting services. If a price scale is constructed using a linear scale, the space between each price point (10, 20, 30, 40) is separated by an equal amount. A price move from 10 to 20 on a linear scale is the same distance on the chart as a move from 40 to 50. In other words, the price scale measures moves in absolute terms and does not show the effects of percent change.

Figure 2 If a price scale is in logarithmic terms, then the distance between points will be equal in terms of percent change. A price change from 10 to 20 is a 100% increase in the price while a move from 40 to 50 is only a 25% change, even though they are represented by the same distance on a linear scale. On a logarithmic scale, the distance of the 100% price change from 10 to 20 will not be the same as the 25% change from 40 to 50. In this case, the move from 10 to 20 is represented by a larger space one the chart, while the move from 40 to 50, is represented by a smaller space because, percentage-wise, it indicates a smaller move.

In Figure 2, the logarithmic price scale on the right leaves the same amount of space between 10 and 20 as it does between 20 and 40 because these both represent 100% increases.

Chart Types There are four main types of charts that are used by investors and traders depending on the information that they are seeking and their individual skill levels. The chart types are: the line chart, the bar chart, the candlestick chart and This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default. asp (Page 18 of 42) Copyright © 2006, Investopedia.

om – All rights reserved. Investopedia. com – Your Source For Investing Education. the point and figure chart. In the following sections, we will focus on the S&P 500 Index during the period of January 2006 through May 2006. Notice how the data used to create the charts is the same, but the way the data is plotted and shown in the charts is different.

Line Chart The most basic of the four charts is the line chart because it represents only the closing prices over a set period of time. The line is formed by connecting the closing prices over the time frame.

Line charts do not provide visual information of the trading range for the individual points such as the high, low and opening prices. However, the closing price is often considered to be the most important price in stock data compared to the high and low for the day and this is why it is the only value used in line charts. Figure 1: A line chart Bar Charts The bar chart expands on the line chart by adding several more key pieces of information to each data point.

The chart is made up of a series of vertical lines that represent each data point.

This vertical line represents the high and low for the trading period, along with the closing price. The close and open are represented on the vertical line by a horizontal dash. The opening price on a bar chart is illustrated by the dash that is located on the left side of the vertical bar. Conversely, the close is represented by the dash on the right.

Generally, if the left dash (open) is lower than the right dash (close) then the bar will be shaded black, representing an up period for the stock, which means it has gained value. A bar that is colored red signals that the stock has gone down in value over that period.

When this is the case, the dash on the right (close) is lower than the dash on the left (open). This tutorial can be found at: http://www. investopedia.

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Figure 2: A bar chart Candlestick Charts The candlestick chart is similar to a bar chart, but it differs in the way that it is visually constructed. Similar to the bar chart, the candlestick also has a thin vertical line showing the period’s trading range.

The difference comes in the formation of a wide bar on the vertical line, which illustrates the difference between the open and close. And, like bar charts, candlesticks also rely heavily on the use of colors to explain what has happened during the trading period. A major problem with the candlestick color configuration, however, is that different sites use different standards; therefore, it is important to understand the candlestick configuration used at the chart site you are working with. There are two color constructs for days up and one for days that the price falls.

When the price of the stock is up and closes above the opening trade, the candlestick will usually be white or clear. If the stock has traded down for the period, then the candlestick will usually be red or black, depending on the site. If the stock’s price has closed above the previous day’s close but below the day’s open, the candlestick will be black or filled with the color that is used to indicate an up day. (To read more, see The Art Of Candlestick Charting – Part 1, Part 2, Part 3 and Part 4. ) This tutorial can be found at: http://www.

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com – Your Source For Investing Education. Figure 3: A candlestick chart Point and Figure Charts The point and figure chart is not well known or used by the average investor but it has had a long history of use dating back to the first technical traders. This type of chart reflects price movements and is not as concerned about time and volume in the formulation of the points. The point and figure chart removes the noise, or insignificant price movements, in the stock, which can distort traders’ views of the price trends.

These types of charts also try to neutralize the skewing effect that time has on chart analysis. (For further reading, see Point And Figure Charting.

) Figure 4: A point and figure chart This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default. asp (Page 21 of 42) Copyright © 2006, Investopedia. com – All rights reserved. Investopedia.

com – Your Source For Investing Education. When first looking at a point and figure chart, you will notice a series of Xs and Os. The Xs represent upward price trends and the Os represent downward price trends.

There are also numbers and letters in the chart; these represent months, and give investors an idea of the date. Each box on the chart represents the price scale, which adjusts depending on the price of the stock: the higher the stock’s price the more each box represents. On most charts where the price is between $20 and $100, a box represents $1, or 1 point for the stock.

The other critical point of a point and figure chart is the reversal criteria. This is usually set at three but it can also be set according to the chartist’s discretion.

The reversal criteria set how much the price has to move away from the high or low in the price trend to create a new trend or, in other words, how much the price has to move in order for a column of Xs to become a column of Os, or vice versa. When the price trend has moved from one trend to another, it shifts to the right, signaling a trend change. Conclusion Charts are one of the most fundamental aspects of technical analysis.

It is important that you clearly understand what is being shown on a chart and the information that it provides.

Now that we have an idea of how charts are constructed, we can move on to the different types of chart patterns. Chart Patterns A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a sign of future price movements. Chartists use these patterns to identify current trends and trend reversals and to trigger buy and sell signals. In the first section of this tutorial, we talked about the three assumptions of technical analysis, the third of which was that in technical analysis, history repeats itself.

The theory behind chart patters is based on this assumption.

The idea is that certain patterns are seen many times, and that these patterns signal a certain high probability move in a stock. Based on the historic trend of a chart pattern setting up a certain price movement, chartists look for these patterns to identify trading opportunities. While there are general ideas and components to every chart pattern, there is no chart pattern that will tell you with 100% certainty where a security is headed. This creates some leeway and debate as to what a good pattern looks like, and is a major reason why charting is often seen as more of an art than a science.

For more insight, see Is finance an art or a science? ) There are two types of patterns within this area of technical analysis, reversal This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default. asp (Page 22 of 42) Copyright © 2006, Investopedia. com – All rights reserved.

Investopedia. com – Your Source For Investing Education. and continuation. A reversal pattern signals that a prior trend will reverse upon completion of the pattern. A continuation pattern, on the other hand, signals that a trend will continue once the pattern is complete.

These patterns can be found over charts of any timeframe.

In this section, we will review some of the more popular chart patterns. (To learn more, check out Continuation Patterns – Part 1, Part 2, Part 3 and Part 4. ) Head and Shoulders This is one of the most popular and reliable chart patterns in technical analysis. Head and shoulders is a reversal chart pattern that when formed, signals that the security is likely to move against the previous trend. As you can see in Figure 1, there are two versions of the head and shoulders chart pattern.

Head and shoulders top (shown on the left) is a hart pattern that is formed at the high of an upward movement and signals that the upward trend is about to end. Head and shoulders bottom, also known as inverse head and shoulders (shown on the right) is the lesser known of the two, but is used to signal a reversal in a downtrend. Figure 1: Head and shoulders top is shown on the left. Head and shoulders bottom, or inverse head and shoulders, is on the right. Both of these head and shoulders patterns are similar in that there are four main parts: two shoulders, a head and a neckline. Also, each individual head and shoulder is comprised of a high and a low.

For example, in the head and shoulders top image shown on the left side in Figure 1, the left shoulder is made up of a high followed by a low. In this pattern, the neckline is a level of support or resistance. Remember that an upward trend is a period of successive rising highs and rising lows. The head and shoulders chart pattern, therefore, illustrates a weakening in a trend by showing the deterioration in the successive movements of the highs and lows. (To learn more, see Price Patterns – Part 2.

) This tutorial can be found at: http://www. investopedia. om/university/technicalanalysis/default. asp (Page 23 of 42) Copyright © 2006, Investopedia. com – All rights reserved. Investopedia.

com – Your Source For Investing Education. Cup and Handle A cup and handle chart is a bullish continuation pattern in which the upward trend has paused but will continue in an upward direction once the pattern is confirmed. Figure 2 As you can see in Figure 2, this price pattern forms what looks like a cup, which is preceded by an upward trend. The handle follows the cup formation and is formed by a generally downward/sideways movement in the security’s price.

Once the price movement pushes above the resistance lines formed in the handle, the upward trend can continue.

There is a wide ranging time frame for this type of pattern, with the span ranging from several months to more than a year. Double Tops and Bottoms This chart pattern is another well-known pattern that signals a trend reversal – it is considered to be one of the most reliable and is commonly used. These patterns are formed after a sustained trend and signal to chartists that the trend is about to reverse.

The pattern is created when a price movement tests support or resistance levels twice and is unable to break through. This pattern is often used to signal intermediate and long-term trend reversals. This tutorial can be found at: http://www.

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com – Your Source For Investing Education. Figure 3: A double top pattern is shown on the left, while a double bottom pattern is shown on the right.

In the case of the double top pattern in Figure 3, the price movement has twice tried to move above a certain price level. After two unsuccessful attempts at pushing the price higher, the trend reverses and the price heads lower. In the case of a double bottom (shown on the right), the price movement has tried to go lower twice, but has found support each time. After the second bounce off of the support, the security enters a new trend and heads upward.

(For more in-depth reading, see The Memory Of Price and Price Patterns – Part 4. Triangles Triangles are some of the most well-known chart patterns used in technical analysis. The three types of triangles, which vary in construct and implication, are the symmetrical triangle, ascending and descending triangle. These chart patterns are considered to last anywhere from a couple of weeks to several months. This tutorial can be found at: http://www.

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Figure 4 The symmetrical triangle in Figure 4 is a pattern in which two trendlines converge toward each other. This pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend in that direction. In an ascending triangle, the upper trendline is flat, while the bottom trendline is upward sloping. This is generally thought of as a bullish pattern in which chartists look for an upside breakout. In a descending triangle, the lower trendline is flat and the upper trendline is descending. This is generally seen as a bearish pattern where chartists look for a downside breakout.

Flag and Pennant These two short-term chart patterns are continuation patterns that are formed when there is a sharp price movement followed by a generally sideways price movement. This pattern is then completed upon another sharp price movement in the same direction as the move that started the trend. The patterns are generally thought to last from one to three weeks. This tutorial can be found at: http://www. investopedia.

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Figure 5 As you can see in Figure 5, there is little difference between a pennant and a flag. The main difference between these price movements can be seen in the middle section of the chart pattern. In a pennant, the middle section is characterized by converging trendlines, much like what is seen in a symmetrical triangle. The middle section on the flag pattern, on the other hand, shows a channel pattern, with no convergence between the trendlines. In both cases, the trend is expected to continue when the price moves above the upper trendline.

Wedge The wedge chart pattern can be either a continuation or reversal pattern. It is similar to a symmetrical triangle except that the wedge pattern slants in an upward or downward direction, while the symmetrical triangle generally shows a sideways movement. The other difference is that wedges tend to form over longer periods, usually between three and six months. Figure 6 The fact that wedges are classified as both continuation and reversal patterns can make reading signals confusing. However, at the most basic level, a falling This tutorial can be found at: http://www. investopedia. om/university/technicalanalysis/default. asp (Page 27 of 42) Copyright © 2006, Investopedia. com – All rights reserved. Investopedia. com – Your Source For Investing Education. wedge is bullish and a rising wedge is bearish. In Figure 6, we have a falling wedge in which two trendlines are converging in a downward direction. If the price was to rise above the upper trendline, it would form a continuation pattern, while a move below the lower trendline would signal a reversal pattern. Gaps A gap in a chart is an empty space between a trading period and the following trading period.

This occurs when there is a large difference in prices between two sequential trading periods. For example, if the trading range in one period is between $25 and $30 and the next trading period opens at $40, there will be a large gap on the chart between these two periods. Gap price movements can be found on bar charts and candlestick charts but will not be found on point and figure or basic line charts. Gaps generally show that something of significance has happened in the security, such as a better-than-expected earnings announcement. There are three main types of gaps, breakaway, runaway (measuring) and exhaustion.

A breakaway gap forms at the start of a trend, a runaway gap forms during the middle of a trend and an exhaustion gap forms near the end of a trend. (For more insight, read Playing The Gap. ) Triple Tops and Bottoms Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis. These are not as prevalent in charts as head and shoulders and double tops and bottoms, but they act in a similar fashion. These two chart patterns are formed when the price movement tests a level of support or resistance three times and is unable to break through; this signals a reversal of the prior trend.

Figure 7 This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default. asp (Page 28 of 42) Copyright © 2006, Investopedia. com – All rights reserved. Investopedia. com – Your Source For Investing Education. Confusion can form with triple tops and bottoms during the formation of the pattern because they can look similar to other chart patterns. After the first two support/resistance tests are formed in the price movement, the pattern will look like a double top or bottom, which could lead a chartist to enter a reversal position too soon.

Rounding Bottom A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that signals a shift from a downward trend to an upward trend. This pattern is traditionally thought to last anywhere from several months to several years. Figure 8 A rounding bottom chart pattern looks similar to a cup and handle pattern but without the handle. The long-term nature of this pattern and the lack of a confirmation trigger, such as the handle in the cup and handle, makes it a difficult pattern to trade. We have finished our look at some of the more popular chart patterns.

You should now be able to recognize each chart pattern as well the signal it can form for chartists. We will now move on to other technical techniques and examine how they are used by technical traders to gauge price movements. Moving Averages Most chart patterns show a lot of variation in price movement. This can make it difficult for traders to get an idea of a security’s overall trend. One simple method traders use to combat this is to apply moving averages. A moving average is the average price of a security over a set amount of time. By plotting a This tutorial can be found at: http://www. investopedia. om/university/technicalanalysis/default. asp (Page 29 of 42) Copyright © 2006, Investopedia. com – All rights reserved. Investopedia. com – Your Source For Investing Education. security’s average price, the price movement is smoothed out. Once the day-today fluctuations are removed, traders are better able to identify the true trend and increase the probability that it will work in their favor. (To learn more, read the Moving Averages tutorial. ) Types of Moving Averages There are a number of different types of moving averages that vary in the way they are calculated, but how each average is interpreted remains the same.

The calculations only differ in regards to the weighting that they place on the price data, shifting from equal weighting of each price point to more weight being placed on recent data. The three most common types of moving averages are simple, linear and exponential. Simple Moving Average (SMA) This is the most common method used to calculate the moving average of prices. It simply takes the sum of all of the past closing prices over the time period and divides the result by the number of prices used in the calculation. For example, in a 10-day moving average, the last 10 closing prices are added together and then divided by 10.

As you can see in Figure 1, a trader is able to make the average less responsive to changing prices by increasing the number of periods used in the calculation. Increasing the number of time periods in the calculation is one of the best ways to gauge the strength of the long-term trend and the likelihood that it will reverse. Figure 1 Many individuals argue that the usefulness of this type of average is limited because each point in the data series has the same impact on the result regardless of where it occurs in the sequence.

The critics argue that the most recent data is more important and, therefore, it should also have a higher This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default. asp (Page 30 of 42) Copyright © 2006, Investopedia. com – All rights reserved. Investopedia. com – Your Source For Investing Education. weighting. This type of criticism has been one of the main factors leading to the invention of other forms of moving averages. Linear Weighted Average This moving average indicator is the least common out of the three and is used to address the problem of the equal weighting.

The linear weighted moving average is calculated by taking the sum of all the closing prices over a certain time period and multiplying them by the position of the data point and then dividing by the sum of the number of periods. For example, in a five-day linear weighted average, today’s closing price is multiplied by five, yesterday’s by four and so on until the first day in the period range is reached. These numbers are then added together and divided by the sum of the multipliers.

Exponential Moving Average (EMA) This moving average calculation uses a smoothing factor to place a higher weight on recent data points and is regarded as much more efficient than the linear weighted average. Having an understanding of the calculation is not generally required for most traders because most charting packages do the calculation for you. The most important thing to remember about the exponential moving average is that it is more responsive to new information relative to the simple moving average. This responsiveness is one of the key factors of why this is the moving average of choice among many technical traders.

As you can see in Figure 2, a 15-period EMA rises and falls faster than a 15-period SMA. This slight difference doesn’t seem like much, but it is an important factor to be aware of since it can affect returns. Figure 2 Major Uses of Moving Averages Moving averages are used to identify current trends and trend reversals as well as to set up support and resistance levels. Moving averages can be used to quickly identify whether a security is moving in This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default. asp (Page 31 of 42) Copyright © 2006, Investopedia. om – All rights reserved. Investopedia. com – Your Source For Investing Education. an uptrend or a downtrend depending on the direction of the moving average. As you can see in Figure 3, when a moving average is heading upward and the price is above it, the security is in an uptrend. Conversely, a downward sloping moving average with the price below can be used to signal a downtrend. Figure 3 Another method of determining momentum is to look at the order of a pair of moving averages. When a short-term average is above a longer-term average, the trend is up.

On the other hand, a long-term average above a shorter-term average signals a downward movement in the trend. Moving average trend reversals are formed in two main ways: when the price moves through a moving average and when it moves through moving average crossovers. The first common signal is when the price moves through an important moving average. For example, when the price of a security that was in an uptrend falls below a 50-period moving average, like in Figure 4, it is a sign that the uptrend may be reversing. This tutorial can be found at: http://www. investopedia. om/university/technicalanalysis/default. asp (Page 32 of 42) Copyright © 2006, Investopedia. com – All rights reserved. Investopedia. com – Your Source For Investing Education. Figure 4 The other signal of a trend reversal is when one moving average crosses through another. For example, as you can see in Figure 5, if the 15-day moving average crosses above the 50-day moving average, it is a positive sign that the price will start to increase. Figure 5 If the periods used in the calculation are relatively short, for example 15 and 35, this could signal a short-term trend reversal.

On the other hand, when two averages with relatively long time frames cross over (50 and 200, for example), this is used to suggest a long-term shift in trend. Another major way moving averages are used is to identify support and resistance levels. It is not uncommon to see a stock that has been falling stop its decline and reverse direction once it hits the support of a major moving average. A move through a major moving average is often used as a signal by technical traders that the trend is reversing. For example, if the price breaks through the This tutorial can be found at: http://www. nvestopedia. com/university/technicalanalysis/default. asp (Page 33 of 42) Copyright © 2006, Investopedia. com – All rights reserved. Investopedia. com – Your Source For Investing Education. 200-day moving average in a downward direction, it is a signal that the uptrend is reversing. Figure 6 Moving averages are a powerful tool for analyzing the trend in a security. They provide useful support and resistance points and are very easy to use. The most common time frames that are used when creating moving averages are the 200day, 100-day, 50-day, 20-day and 10-day.

The 200-day average is thought to be a good measure of a trading year, a 100-day average of a half a year, a 50-day average of a quarter of a year, a 20-day average of a month and 10-day average of two weeks. Moving averages help technical traders smooth out some of the noise that is found in day-to-day price movements, giving traders a clearer view of the price trend. So far we have been focused on price movement, through charts and averages. In the next section, we’ll look at some other techniques used to confirm price movement and patterns. Indicators And Oscillators

Indicators are calculations based on the price and the volume of a security that measure such things as money flow, trends, volatility and momentum. Indicators are used as a secondary measure to the actual price movements and add additional information to the analysis of securities. Indicators are used in two main ways: to confirm price movement and the quality of chart patterns, and to form buy and sell signals. There are two main types of indicators: leading and lagging. A leading indicator precedes price movements, giving them a predictive quality, while a lagging indicator is a confirmation tool because it follows price movement.

A leading indicator is thought to be the strongest during periods of sideways or nontrending trading ranges, while the lagging indicators are still useful during This tutorial can be found at: http://www. investopedia. com/university/technicalanalysis/default. asp (Page 34 of 42) Copyright © 2006, Investopedia. com – All rights reserved. Investopedia. com – Your Source For Investing Education. trending periods. There are also two types of indicator constructions: those that fall in a bounded range and those that do not.

The ones that are bound within a range are called oscillators – these are the most common type of indicators. Oscillator indicators have a range, for example between zero and 100, and signal periods where the security is overbought (near 100) or oversold (near zero). Non-bounded indicators still form buy and sell signals along with displaying strength or weakness, but they vary in the way they do this. The two main ways that indicators are used to form buy and sell signals in technical analysis is through crossovers and divergence.

Crossovers are the most popular and are reflected when either the price moves through the moving average, or when two different moving averages cross over each other. The second way indicators are used is through divergence, which happens when the direction of the price trend and the direction of the indicator trend are moving in the opposite direction. This signals to indicator users that t

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The Ultimate Guide to Case Study Analysis

Welcome to a comprehensive exploration of the realm where real-world scenarios meet analytical prowess. In academia and business, the art of dissecting situations, identifying key issues, and formulating strategic recommendations is paramount. This guide is designed to equip you with the skills needed to navigate the complexities of case study analysis effectively. Whether you are a student honing your problem-solving abilities or a professional seeking to enhance your decision-making skills, this resource is tailored to meet your requirements. Through practical advice, real-life examples, and expert perspectives, you will gain the expertise to extract valuable insights from cases and apply them in various contexts. Prepare to embark on a journey that will elevate your analytical thinking and empower you to make informed decisions. Let’s delve into the world of analytical exploration together!

Key Steps in Conducting a Case Study Analysis

Case studies are an integral part of various academic and professional fields, providing a detailed examination of a particular subject. Conducting a case study analysis involves several key steps that help in understanding the complexities of the case and deriving meaningful insights. Here are the essential steps to effectively conduct a case study analysis:.

Preparing for Analysis: The first step in conducting a case study analysis is to thoroughly read and understand the case study. Identify the key stakeholders, relevant facts, and any other pertinent information that will aid in the analysis. It is essential to create a timeline of events and gather all necessary data to ensure a comprehensive understanding of the case.

Identifying Key Problems and Issues: Once you have a good grasp of the case study, identify the main problems or issues that the subject is facing. This step involves critically analyzing the information presented and determining the root causes of the problems. Conduct interviews, surveys, or additional research to delve deeper into the identified issues and gain multiple perspectives.

Formulating a Thesis Statement: Based on the identified problems, formulate a clear and concise thesis statement that summarizes the main issue or challenge faced by the subject of the case study. The thesis statement will guide the rest of your analysis. Ensure that your thesis statement is specific, measurable, achievable, relevant, and time-bound (SMART) to effectively address the problem.

Recommendations and Further Actions: After analyzing the case study and developing a thesis statement, it is crucial to provide recommendations and suggest further actions that can address the identified problems. These recommendations should be practical, feasible, and supported by evidence from the case study. Consider the implications of your recommendations and propose a detailed action plan with clear steps and responsibilities.

Implementation and Evaluation: Once recommendations are made, focus on the implementation phase. Develop a monitoring and evaluation plan to track the progress of the proposed solutions. Regularly assess the outcomes and make adjustments as needed to ensure the effectiveness of the implemented strategies.

By following these key steps in conducting a case study analysis, you can effectively analyze complex cases, draw meaningful conclusions, and propose actionable recommendations for addressing the issues at hand. Remember, a well-executed case study analysis can provide valuable insights and contribute to informed decision-making processes.

Writing a Comprehensive Case Study Analysis

Case studies are an essential tool for understanding real-world scenarios and applying theoretical knowledge to practical situations. A well-crafted case study analysis can provide valuable insights and recommendations for businesses, organizations, and individuals. To ensure that your case study analysis is thorough and effective, consider the following points:.

Structuring Your Analysis: Begin by outlining the key issues or problems presented in the case study. Identify the main stakeholders involved and their interests. Then, develop a logical structure for your analysis, including an introduction, background information, analysis of key issues, recommendations, and a conclusion.

Incorporating Supporting Evidence: Back up your analysis with relevant data, facts, and examples from the case study. Use charts, graphs, and other visual aids to illustrate your points. Make sure to cite your sources properly and provide a clear rationale for your conclusions.

Proofreading and Editing: Before finalizing your case study analysis, review it carefully for errors in grammar, punctuation, and spelling. Ensure that your writing is clear, concise, and free of jargon. Consider seeking feedback from peers or mentors to improve the quality of your analysis.

In addition to the above points, it is crucial to delve deeper into the case study context. Understand the industry trends, competitive landscape, and any external factors that may influence the situation. Conduct a SWOT analysis to identify strengths, weaknesses, opportunities, and threats relevant to the case. This strategic analysis can provide a holistic view and help in formulating more robust recommendations.

Furthermore, consider the ethical implications of the decisions proposed in your analysis. Evaluate the potential impact on various stakeholders, including employees, customers, and the community. Addressing ethical considerations demonstrates a comprehensive understanding of the case study and showcases your commitment to responsible decision-making.

Lastly, consider the implementation aspects of your recommendations. Outline a detailed action plan with clear steps, responsibilities, and timelines. Discuss potential challenges that may arise during implementation and propose mitigation strategies to ensure successful execution.

By incorporating these additional elements into your case study analysis, you can elevate the depth and quality of your insights, making your analysis a valuable resource for strategic planning and problem-solving.

Enhancing Your Case Study Analysis

When it comes to conducting a case study analysis, there are various strategies that can be employed to enhance the quality and effectiveness of the study. Two key approaches that can significantly improve your case study analysis are utilizing templates for structuring your case studies and incorporating visual elements to increase reader engagement.

Utilizing Templates for Effective Case Studies:

Templates can serve as a valuable tool in organizing and presenting your case study in a clear and structured manner. By using a template, you can ensure that all essential components of the case study are included, such as the background information, problem statement, methodology, results, and conclusions. Templates can also help maintain consistency across multiple case studies, making it easier for readers to navigate and understand the content.

Incorporating Visual Elements for Engagement:

In addition to well-structured content, incorporating visual elements can greatly enhance the engagement level of your case study. Visual elements such as charts, graphs, images, and infographics can help break down complex information into more digestible formats, making it easier for readers to grasp key insights and findings. Visuals can also make your case study more visually appealing and memorable, increasing the likelihood of reader retention and understanding.

Moreover, when incorporating visual elements, it is essential to ensure that they are relevant and complement the textual content. Visual aids should not only enhance understanding but also add value by providing additional context or highlighting critical points within the case study.

Furthermore, consider the target audience when selecting visual elements. Different types of visuals may resonate better with specific audiences. For instance, a business-oriented audience might prefer data-driven charts and graphs, while a more general audience might respond better to illustrative images or real-life examples.

Additionally, interactive elements such as clickable graphics or embedded multimedia can further enhance reader engagement and interactivity with the case study content. These interactive features can create a more immersive experience for the audience, allowing them to explore the information in a more dynamic and personalized way.

By incorporating a combination of well-structured templates, relevant visual elements, and interactive features, you can not only improve the overall quality of your case study analysis but also create a more engaging and impactful experience for your audience.

Citing Sources and Appendices

When writing any academic or research-based content, it is crucial to properly cite all external sources used in your work. This not only gives credit to the original authors but also helps readers locate the sources for further reference. There are various citation styles that one can follow, such as APA (American Psychological Association), MLA (Modern Language Association), or Harvard style. Each style has its own set of rules regarding how to cite different types of sources like books, journals, websites, etc. It is essential to be consistent in applying the chosen citation style throughout the document.

In addition to citing external sources, including appendices can also enhance the quality and credibility of your work

Appendices are used to provide supplementary information that is not essential to the main text but can offer valuable context or data. This could include raw data, detailed technical information, questionnaires used in research, or any additional material that supports the main content of the document. When including appendices, it is important to clearly label each one and refer to them within the main text when necessary. This ensures that readers can easily navigate through the document and access the supplementary information as needed.

Referencing External Sources

When citing external sources, it is important to follow the guidelines of the chosen citation style. In addition to the basic information like author name, publication year, and title, some citation styles may require additional details such as page numbers, URLs, or DOI (Digital Object Identifier). It is crucial to accurately record these details to provide a complete and accurate reference.

Using Citation Styles like APA, MLA, or Harvard

Each citation style has its own unique format for citing sources. For example, in APA style, in-text citations typically include the author’s last name and the publication year, while MLA style uses the author’s last name and page number. Understanding the specific requirements of each style is essential to ensure proper citation throughout the document.

Including Appendices for Original Data

Appendices are a valuable tool for including supplementary information that supports the main content of your work. When including original data in an appendix, it is important to present the information in a clear and organized manner. This could involve creating tables, charts, or graphs to present the data visually, along with a brief explanation to help readers interpret the information effectively.

Overall, citing external sources and including appendices are essential components of academic and research writing. By following the guidelines of the chosen citation style and providing relevant supplementary information in the appendices, you can enhance the credibility and clarity of your work.

Mastering the art of case study analysis is a valuable skill that can greatly benefit students and professionals alike. By following the steps outlined in this guide, individuals can enhance their critical thinking abilities and problem-solving skills. Additionally, honing the ability to dissect and analyze case studies effectively can lead to improved decision-making and strategic planning in various fields. For further guidance on crafting concise and engaging summaries of research studies, check out the detailed tips provided in the article ‘How to Write a Scientific Abstract’ at Avidnote . Strengthen your academic writing skills and enhance your research capabilities today!.

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Technical Analysis – A Beginner’s Guide

A trading approach that helps investors and traders make decisions by studying statistical patterns derived from trading activities, like price changes and trading volumes.

Jas Per Lim

Prior to accepting a position as the Director of Operations Strategy at DJO Global, Manu was a management consultant with  McKinsey  & Company in Houston. He served clients, including presenting directly to C-level executives, in digital, strategy,  M&A , and operations projects.

Manu holds a PHD in Biomedical Engineering from Duke University and a BA in Physics from Cornell University.

What Is Technical Analysis?

Understanding technical analysis.

  • Technical Analysis Using Candlestick Charts

Candlestick Patterns - Bullish

Candlestick patterns - bearish.

  • Technical Analysis Based On Moving Averages

Using Moving Averages

  • MACD: The Key Indicator Of Technical Analysis
  • Other Indicators For Technical Analysis
  • Fundamental Vs. Technical Analysis

Technical analysis is a widely practiced trading approach that helps investors and traders make decisions by studying statistical patterns derived from trading activities, like price changes and trading volumes.

Unlike fundamental analysis , which focuses on a company's financial performance , technical analysis concentrates on analyzing price and volume movements in the market.

It has a long history and is widely accepted among professionals, regulators, and academics, especially in behavioral finance. While technical analysis follows specific rules, its interpretation is subjective and depends on the analyst's style and approach.

This method aims to predict future price movements of securities, such as stocks or currency pairs , by analyzing market data.

The underlying principle is that market participants' collective buying and selling actions accurately reflect all relevant information, establishing a fair market value for the security. It is a valuable tool for traders and investors seeking insights into market trends and potential trading opportunities.

Key Takeaways

  • Technical analysis is a trading approach that relies on historical price and volume data to predict future price movements, making it a valuable tool for traders and investors.
  • It involves interpreting price movements and patterns, allowing investors to make informed decisions.
  • Technical analysis tools include candlestick charts, moving averages, MACD indicators, support/resistance levels, Bollinger Bands, and RSI, offering a comprehensive overview of methods to analyze market trends and potential investment opportunities.
  • Technical analysis offers additional tools like Bollinger Bands and the Relative Strength Index (RSI) to help traders assess market conditions and make informed decisions.

Technical analysis is a discipline investors use to evaluate investment opportunities.

If you’re a university student who has recently gained some interest in capital markets but is a complete amateur, this article is perfect for you. Technical analysis is an extremely helpful tool to assist you in making investment decisions.

Many retail day traders make a living purely off investing or trading in the stock exchange and post outrageous daily returns. However, this analysis is not limited to retail investors, as many finance professionals rely on technical indicators to improve their investment decisions. 

Unfortunately, nothing generates absolutely risk-free returns as with all investment strategies . You are still taking a risk with every trade you make, and whatever analysis you carry out is merely attempting to minimize that risk and maximize potential return. 

When evaluating stocks, technical analysis takes a different approach than fundamental analysis. But, generally speaking, there will be clear differences in the beliefs, attitudes, and mindsets toward investment decisions.

Most sophisticated investors understand both viewpoints and will likely use a mix of both. Therefore, if you are new to investing, you need to have a feel for the mentality of investors who use technical analysis before you decide it is the right way to invest. 

So, what are you doing when technically analyzing a stock? You’re looking at historical data (often prices), analyzing it, and computing particular mathematical formulas that allow you to see how the stock has been trading from a unique standpoint.

Subsequently, you will use your analysis to predict how the stock price will move. For example, if the company’s 50-day moving average share price trades below its 200-day moving average, some traders may interpret it as a potential sell signal, although interpretations can vary.

technical analysis using Candlestick charts 

The New York Stock Exchange (NYSE) has trading hours between 9:30 am and 4:00 pm Eastern Time from Monday to Friday. During this time, the market prices of stocks are updated every time a trade takes place, and there are ~12,000 million  shares exchanging hands daily.

It is safe to say that the market prices of shares fluctuate considerably during trading hours. Therefore, when trading stocks , a candlestick chart is one method to incorporate all that fluctuation into a company’s share price. Here is what a typical candlestick looks like: 

case study on technical analysis

A candlestick will show how the price has fluctuated based on the selected period (Eg. 15-minute, 1-hour, or 1-day intervals). For example, if you decide to choose the  1-day interval candlestick , then it will show you: 

  • The open price
  • The highest price it traded at during the day
  • The lowest price it traded at during the day
  • The closing price

The candlestick will take on either a green or red color depending on whether the stock’s price has gone up or down during that period. If the stock price increases during the chosen period, the candlestick will be green. If the price has decreased, the candlestick will be red. 

Once you’ve looked at candlesticks for some time, you will start to get very comfortable reading them because they are extremely intuitive and simple to understand. In addition, the benefits of using a candlestick chart over a simple line chart are pretty straightforward. 

For example, if you were researching a company’s stock and decided to plot its daily share price using a line chart, you’d only see its closing prices and nothing about how it traded during the day. That would not be an issue with the candlestick chart. 

However, a candlestick is not without flaws. For example, although you’d be able to get a feel for how prices have fluctuated, you wouldn’t be able to see at what price the stock was mostly traded or the Volume-Weighted Average Price (VWAP) of that stock.

For example, if a stock opened at $2, closed at $5, mostly traded around $3, and reached an intra-day high of $7, you would see a green candlestick with a tiny upper shadow only if the closing price was higher than the opening price. If the closing price was lower, the candlestick would be red.

You can think of the volume-weighted average price that calculates the average price that the stock has traded based on every single time a trade has happened. The VWAP can reduce noise and display the price that most investors are buying the stock at.

Now that you understand candlesticks, there have been patterns that investors use to determine whether there is a bullish or bearish signal based on how a stock has been trading. Then, depending on the signal, investors would decide whether to long or short that stock.

If there is a bullish signal, it is a sign to buy the stock and open a long position .

A long position is where an investor buys a stock anticipating an increase in the price. In contrast, short-selling involves selling borrowed shares with the expectation of buying them back at a lower price, profiting from the price difference.

There are many bullish indicators, with some requiring just one candlestick and others requiring 2-3 candlesticks. It is seen here as follows: 

case study on technical analysis

  • Hammer:  Has a short candle with a long lower shadow. Despite the induced selling pressure, the price has managed to close above open, suggesting more buying power.
  • Inverted hammer:  Has a short candle with a long upper shadow. This shows that some selling pressure followed strong buying power. The overall indicator is more buyers than sellers because the price has closed above open. This is the exact opposite of a normal bullish hammer candle.
  • Bullish engulfing:  Formed when a large green candle “engulfs” the prior trading day red candle. The bullish engulfing pattern typically forms when a stock opens lower and closes higher than the prior trading day. 
  • Three white soldiers:  Often occur after a string of selling days and is a reversal from the previous lows. The pattern is indicated by three consecutive days where the price has closed substantially from its open price. 

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Subsequently, bearish indicators signal that it might be a good idea for investors to sell their current open positions or open a new short position . 

Although there are many candlestick indicators, one (general) rule of thumb is that the bearish candlesticks take the opposite shape of the bullish candlesticks, requiring 1-3 candlesticks to form a signal. It is demonstrated as follows:

case study on technical analysis

  • Shooting star :  Opposite of an inverted hammer (in terms of price movement, not the look of the candle); has a small candle with a long upper shadow. This shows that buying pressure is running out, and investors are starting to take profits.
  • Hanging man:  Opposite of a hammer; has a small candle with a long lower shadow. Even though prices closed above their low intraday, selling has overpowered buying pressure.
  • Bearish engulfing:  Opposite of the bullish engulfing; this pattern can be seen when a stock opens higher and closes lower than its prior green trading day. The result is a much larger red candle going downwards, indicating strong selling pressure. 
  • Three black crows: The opposite of the three white soldiers. Usually seen as the end of a bull run, prices are expected to trend downwards from thereon. This pattern is formed after 3 consecutive red candles that are considerably large. 

The examples above are by no means an exhaustive list. There are many candlestick patterns out there, and you should dive deeper into this topic yourself if this is something that you find appealing.

However, please do not rely purely on candlestick patterns to invest your hard-earned money. That would be considered more gambling than investing. Instead, use more technical indicators alongside other fundamental indicators.

If you are ever confused between the term “bull” and “bear”, think about how these animals attack. A bull charges by swinging its horns  upwards  (go up), while a bear attacks by swiping its claws  downwards  (go down). This reflects the direction of the stocks.

technical analysis based on Moving averages  

It was concluded above that stocks experience daily volatility and, as a result, adjust frequently. Sometimes, these prices can fluctuate to a strangely large extent although there is no catalyst driving the share price. 

What does “no catalyst” mean? Without going too much into detail, a company’s share price is expected only to adjust dramatically when new relevant information is released (see the  efficient market hypothesis ). 

When there is no new information, the stock’s price is not expected to move very much because there is no reason for it to do so - prices have reflected all presently available information and are considered “efficient”.

Therefore, many investors consider these unjustified fluctuations in the stock price as noise. Essentially, noise can be characterized as deviations from the share price’s efficient value—the greater the daily volatility, the noisier the market. 

The candlestick chart will capture all the noise in a company’s share price. So you’d be able to see all the prices that the stock has traded at, and in some cases, investors might find the noise misleading. Therefore, this is where the moving average will come in. 

The moving average calculates the average share price that a company has traded during the specified period. For example, a company’s 50-day moving average share price will show the average closing price of the last 50 days. 

Calculation

Calculating a company’s moving average price has the benefit of reducing the amount of noise that goes on during trading hours. There are two moving averages:

  • Simple moving average (SMA)
  • Exponential moving average ( EMA )

The simple moving average calculates a company’s average closing price for a specified duration. The formula can be seen as: 

SMA = (P t + P t-1 + P t-2 +... + P t-n+1 ) / n 

  • P = Closing price 
  • n = Number of days

Don’t overthink this formula too much, and understand its intuition. A company’s 5-day simple moving average share price represents its average closing price for the last 5 days. It is simple arithmetic math.

The exponential moving average reacts more quickly to price changes due to the exponential smoothing technique, which places greater weight on recent trading days, making it more responsive to recent price movements than the simple moving average (SMA).

In the interest of space, the formula for the exponential moving average will not be shown here. Either way, most stock information websites (Yahoo Finance, Market Watch, etc.) can calculate these formulas automatically. 

How are moving averages useful? Aside from tuning out the noise in capital markets, moving averages can also be used to indicate bull or bear signals and calculate certain indicators. Let’s start with the simplest signals. 

The simplest strategy that investors use is  crossovers.  Investors do this by computing two moving averages (one long & one short period) and decide to buy or sell company stock based on the interaction between both moving averages. A crossover strategy looks like this: 

  • Calculate a long simple moving average (commonly 200 days)
  • Calculate a short, simple moving average (commonly 50 days)
  • It is a bullish sign when the short SMA intersects and crosses  ABOVE  the long SMA. This is considered the formation of a  golden cross , and investors should go long or close existing short positions .
  • It is a bearish sign when the short SMA intersects and crosses  BELOW  the long SMA. This is considered a death cross formation, and investors should go short or close open long positions .

The chart below shows a clear example using Apple stock, with the orange line referring to its 50-day SMA and the purple line referring to its 200-day SMA. 

case study on technical analysis

As you can see, selling after the Death Cross did help investors cut some losses, while buying after the Golden Cross provided some returns to investors. This is why crossovers are a useful reference for investors. 

However, one massive flaw in the crossover strategy is that they are inherently lagging. Therefore, there is a potential that investors may have missed the boat as markets have already moved before the crossover strategy picks it up. 

There isn’t really any hard and fast rule behind deciding the number of days into the SMA calculations. That really depends on your time frame as an investor. 

Some people also compare the short SMA to the trading price of the company stock. If the daily share price crosses above the short SMA, then investors would consider that as a buy signal, and vice versa. 

MACD: the key indicator of technical analysis

The MACD indicator really takes your technical analysis ability to the next level. As with all technical indicators, the MACD aims to identify buy and sell signals. There are 3 parts to the MACD: 

  • The MACD line 
  • The signal line
  • The histogram

The MACD line essentially aims to simplify the interpretation of the crossover strategy explained above by comparing a long and a short moving average. The formula for the MACD is as follows: 

MACD = 12 day EMA - 26 day EMA 

Perhaps the long-period moving average isn’t very long, but this is the commonly used formula. The benefit of using 12 & 26 days and the EMA over SMA is that this indicator is much more reactive to market movement. 

Because of this formula, you can expect the MACD to oscillate above and below the value 0. The following are some key interpretations regarding the MACD value: 

  • When the MACD takes on a positive value, the 12-day EMA is greater than the 26-day EMA
  • When the MACD takes on a negative value, the 26-day EMA exceeds the 12-day EMA.
  • When the MACD is 0, it can be interpreted similarly as either a golden cross or a death cross because when the MACD is 0, the 12-day EMA and 26-day EMA intersect. 

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How does the MACD differ from the crossover strategy?  

Well, not only does an increasing (decreasing) MACD indicate that the market is in a bull (bear) run, but there is more to the MACD. 

This would be where the signal line comes in. The signal line is calculated as the 9-day exponential moving average by default . Without going into too much detail, the crossovers between the signal & the MACD line would be your bull and bear signals. Basically: 

  • When the MACD line crosses  ABOVE  the signal line, it is a buy signal
  • When the MACD line crosses  BELOW  the signal line, it is a sell signal

The last part of this indicator is the histogram. The main purpose of the histogram is to measure the distance between the MACD line and the signal line. Therefore, traders will use the trend in the histogram to identify patterns and potential crossovers. 

Let us look at the example of Apple once again: 

case study on technical analysis

The purple line here represents the MACD line, whereas the orange one represents the signal line. When the MACD crosses above (below) the signal line, investors are recommended to buy (sell) Apple stock. From this chart itself, there is one very clear benefit to using the MACD. 

You can notice that the buy or sell signals are indicated much earlier than when the MACD line hits 0. Therefore, this model does predict earlier movement. 

Remember, using easier moving average crossovers had an issue of being too slow due to inherent lag in the indicator. In this scenario, the 26-day and 12-day EMA intersect and form either a golden or death cross when the MACD line hits 0. 

As with regular crossovers, there isn’t any hard and fast rule behind the number of days used to form the MACD indicator- it is simply the default formula. In most cases, you can change the number of days calculated in this formula as you see fit. 

Because the number of days chosen in the MACD is of a relatively short time frame (and the indicator uses EMA over SMA), the MACD is considered more useful to short-term day traders than long-term investors. 

Other indicators for technical analysis

So far, this article should have done well in introducing you to the basics of this concept. However, there are many more indicators for you to dive deeper into. Therefore, here are some indicators to look at alongside basic descriptions. 

Support and resistance levels

Support and resistance levels are among the most common indicators in technical analysis. By looking at candlestick charts, investors can see points where the share price always experiences reversals. 

case study on technical analysis

The support level can be characterized as the “lowest possible” price at which a company stock will trade. Investors view support levels as an opportunity to open a long position because there is little downside, as prices are expected to bounce back after hitting their support level. 

The resistance level can be characterized as the “highest possible” price at which company stock will trade. Investors view resistance levels as an opportunity to take profits and sell their positions to realize the maximum upside because prices won’t go up any higher. 

However, support and resistance levels aren’t invincible and can be broken. If support levels are broken, it is a bearish sign that investors have lost hope in the stock, and it is expected to trend further downward. The opposite applies to broken resistance levels. 

There is no ideal methodology for determining support and resistance levels. For example, some investors may look at a company’s all-time high and conclude that to be the resistance level. 

Aside from that, investors may notice that a stock has never traded below a certain price for the past year and determine that the support level should be around that price point.

Bollinger bands

Bollinger bands were developed by John Bollinger and were designed to capture most of a company’s share price movement. This is done by constructing an upper and lower band around a company’s 20-day simple moving average. 

case study on technical analysis

Although it is customizable, Bollinger bands are generally constructed two standard deviations away from the default 20-day simple moving average. You can see this from the image above, where the blue lines represent the bands while the dotted orange line is the 20-day SMA. 

Therefore, if the share price is trading near the lower (upper) band, there is some indication that the stock may have been oversold (overbought), and a reversal is expected to occur. 

Investors who believe in the likelihood of this reversal should then capitalize on this opportunity by taking the appropriate action - buy when prices are near the lower band and sell when prices are near the upper band. 

The Bollinger band also has the additional benefit of indicating market volatility. The greater the volatility in a company’s share price, the wider the Bollinger bands would be. 

If they are very far apart, investors could trade the stock more conservatively or aggressively depending on their goal, thus making Bollinger bands a useful tool for investors and traders.

Relative strength index (RSI)

The relative strength index is often compared to the MACD because it is also displayed as an oscillator. Although often compared to the MACD, the process of deriving the RSI is significantly different and should, therefore be treated as a different indicator. 

The RSI is designed to oscillate between the numbers 0 to 100. Any number below 30 is an indicator that a stock has been oversold, and any number above 70 is an indicator that a stock has been overbought. You can see an example using the image below: 

case study on technical analysis

The RSI is calculated by comparing the average gain to the average losses over a default 14-day period. If a company’s share price appreciates too much over 14 days, that will tempt many investors to take a profit. A high RSI value will capture this. 

The RSI will also capture oversold conditions when the share price drops too much over 14 days. Because markets are cyclical, investors who take a long position in company stock when its RSI value is 30 or lower will often see their position appreciate in value. 

Fundamental Vs. Technical analysis

Capital markets play a big part in the economy, from helping individuals generate passive income to giving corporations access to financing for various expenditure types. Therefore, it would be safe to say there isn’t only one way to invest in markets.

As mentioned earlier, technical analysis follows a completely different approach from fundamental analysis. 

Investors who fundamentally analyze company stock will attempt to establish its intrinsic value, which essentially means how much money the company can generate and, thus, how much you should be paying for the company. 

To fundamentally analyze a company, you’d need to understand its industry, its financial statements, revenue drivers, etc. Furthermore, you’d have to understand how this company will operate in the future and what its earnings will look like.

In contrast, investors who technically analyze a company don’t bother much about that type of information. Instead, they’d focus more on the company’s price charts and relevant indicators.

To understand better, let's take a look at the difference table below:

Fundamental Vs Technical Analysis
Aspect Fundamental Analysis Technical Analysis
Analyzes intrinsic value, industry, financial statements, future earnings, etc. Focuses on price charts and relevant indicators, believing historical data can predict future trends and momentum.
Company-specific data and industry analysis. Price charts and historical market data.
Believes in the efficient market hypothesis, where stock prices reflect intrinsic value. Believes markets are not always efficient, and historical data can provide opportunities to profit.
Longer investment periods. Shorter investment time frames, including day trading.
Typically follows buying low and selling high strategy. May involve buying high and selling low, focusing on momentum and trends.
Intrinsic value and financial health of the company. Historical price patterns, trends, and market momentum.
Commonly used by value investors and long-term investors. Commonly used by day traders and short-term investors.
Sophisticated investors may combine both fundamental and technical analysis for a balanced perspective. Investors might use a mix of fundamental and technical analysis for comprehensive decision-making.

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What Is Technical Analysis?

Understanding technical analysis, using technical analysis.

  • Underlying Assumptions
  • Technical vs. Fundamental Analysis

Limitations of Technical Analysis

Chartered market technician (cmt).

  • Technical Analysis FAQs

Technical Analysis: What It Is and How to Use It in Investing

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

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  • Technical Analysis CURRENT ARTICLE

Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysis, which attempts to evaluate a security's value based on business results such as sales and earnings,  technical analysis  focuses on the study of price and volume.

Key Takeaways

  • Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities in price trends and patterns seen on charts.
  • Technical analysts believe past trading activity and price changes of a security can be valuable indicators of the security's future price movements.
  • Technical analysis may be contrasted with fundamental analysis, which focuses on a company's financials rather than historical price patterns or stock trends.

Investopedia / Candra Huff

Technical analysis tools are used to scrutinize the ways supply and demand for a security will affect changes in price, volume, and implied volatility. It operates from the assumption that past trading activity and price changes of a security can be valuable indicators of the security's future price movements when paired with appropriate investing or trading rules.

It is often used to generate short-term trading signals from various charting tools, but can also help improve the evaluation of a security's strength or weakness relative to the broader market or one of its sectors. This information helps analysts improve their overall valuation estimate.

Technical analysis as we know it today was first introduced by Charles Dow and the Dow Theory in the late 1800s. Several noteworthy researchers including William P. Hamilton, Robert Rhea, Edson Gould, and John Magee further contributed to Dow Theory concepts helping to form its basis. Nowadays technical analysis has evolved to include hundreds of patterns and signals developed through years of research.

Professional analysts often use technical analysis in conjunction with other forms of research. Retail traders may make decisions based solely on the price charts of a security and similar statistics, but practicing equity analysts rarely limit their research to fundamental or technical analysis alone.

Technical analysis can be applied to any security with historical trading data. This includes stocks,  futures ,  commodities , fixed-income, currencies, and other securities. In fact, technical analysis is far more prevalent in commodities and  forex  markets where  traders  focus on short-term price movements.

Technical analysis attempts to forecast the price movement of virtually any tradable instrument that is generally subject to forces of supply and demand, including stocks, bonds, futures, and currency pairs. In fact, some view technical analysis as simply the study of supply and demand forces as reflected in the market price movements of a security.

Technical analysis most commonly applies to price changes, but some analysts track numbers other than just price, such as trading volume or open interest figures.

Technical Analysis Indicators

Across the industry, there are hundreds of patterns and signals that have been developed by researchers to support technical analysis trading. Technical analysts have also developed numerous types of trading systems to help them forecast and trade on price movements.

Some indicators are focused primarily on identifying the current market trend, including support and resistance areas, while others are focused on determining the strength of a trend and the likelihood of its continuation. Commonly used technical indicators and charting patterns include trendlines, channels, moving averages, and momentum indicators.

In general, technical analysts look at the following broad types of indicators:

  • Price trends
  • Chart patterns
  • Volume and momentum indicators
  • Oscillators
  • Moving averages
  • Support and resistance levels

Underlying Assumptions of Technical Analysis

There are two primary methods used to analyze securities and make investment decisions:  fundamental analysis  and technical analysis. Fundamental analysis involves analyzing a company’s financial statements to determine the fair value of the business, while technical analysis assumes that a security's price already reflects all publicly available information and instead focuses on the statistical analysis of price movements .

Technical analysis attempts to understand the market sentiment behind price trends by looking for patterns and trends rather than analyzing a security's fundamental attributes.

Charles Dow released a series of editorials discussing technical analysis theory. His writings included two basic assumptions that have continued to form the framework for technical analysis trading.

  • Markets are efficient with values representing factors that influence a security's price, but
  • Even random market price movements appear to move in identifiable patterns and trends that tend to repeat over time.

Today the field of technical analysis builds on Dow's work. Professional analysts typically accept three general assumptions for the discipline:

  • The market discounts everything: Technical analysts believe that everything from a company's fundamentals to broad market factors to  market psychology  is already priced into the stock. This point of view is congruent with the Efficient Markets Hypothesis (EMH) which assumes a similar conclusion about prices. The only thing remaining is the analysis of price movements, which technical analysts view as the product of supply and demand for a particular stock in the market.
  • Price moves in trends: Technical analysts expect that prices, even in random market movements, will exhibit trends regardless of the time frame being observed. In other words, a stock price is more likely to continue a past trend than move erratically. Most technical trading strategies are based on this assumption.
  • History tends to repeat itself: Technical analysts believe that history tends to repeat itself. The repetitive nature of price movements is often attributed to market psychology, which tends to be very predictable based on emotions like fear or excitement. Technical analysis uses chart patterns to analyze these emotions and subsequent market movements to understand trends. While many forms of technical analysis have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves.

Technical Analysis vs. Fundamental Analysis

Fundamental analysis and technical analysis, the major schools of thought when it comes to approaching the markets, are at opposite ends of the spectrum. Both methods are used for researching and forecasting future trends in stock prices , and like any investment strategy or philosophy, both have their advocates and adversaries.

Fundamental analysis is a method of evaluating securities by attempting to measure the  intrinsic value  of a stock. Fundamental analysts study everything from the overall economy and industry conditions to the financial condition and management of companies.  Earnings ,  expenses , assets, and liabilities are all important characteristics to fundamental analysts.

Technical analysis differs from fundamental analysis in that the stock's price and volume are the only inputs. The core assumption is that all known fundamentals are factored into price; thus, there is no need to pay close attention to them. Technical analysts do not attempt to measure a security's intrinsic value, but instead, use stock charts to identify patterns and trends that suggest what a stock will do in the future.

Some analysts and academic researchers expect that the EMH demonstrates why they shouldn't expect any actionable information to be contained in historical pric e and volume data; however, by the same reasoning, neither should business fundamentals provide any actionable information. These points of view are known as the weak form and semi-strong form of the EMH.

Another criticism of technical analysis is that history does not repeat itself exactly, so price pattern study is of dubious importance and can be ignored. Prices seem to be better modeled by assuming a random walk.

A third criticism of technical analysis is that it works in some cases but only because it constitutes a self-fulfilling prophecy. For example, many technical traders will place a  stop-loss order  below the 200-day moving average of a certain company. If a large number of traders have done so and the stock reaches this price, there will be a large number of sell orders, which will push the stock down, confirming the movement traders anticipated.

Then, other traders will see the price decrease and also sell their positions, reinforcing the strength of the trend. This short-term selling pressure can be considered self-fulfilling, but it will have little bearing on where the asset's price will be weeks or months from now.

In sum, if enough people use the same signals, they could cause the movement foretold by the signal, but over the long run, this sole group of traders cannot drive the price.

Among professional analysts, the CMT Association supports the largest collection of chartered or certified analysts using technical analysis professionally around the world. The association's Chartered Market Technician (CMT) designation can be obtained after three levels of exams that cover both a broad and deep look at technical analysis tools.

The association now waives Level 1 of the CMT exam for those who are Certified Financial Analyst (CFA) charterholders. This demonstrates how well the two disciplines reinforce each other.

What Assumptions Do Technical Analysts Make?

Professional technical analysts typically accept three general assumptions for the discipline. The first is that, similar to the efficient market hypothesis, the market discounts everything. Second, they expect that prices, even in random market movements, will exhibit trends regardless of the time frame being observed. Finally, they believe that history tends to repeat itself. The repetitive nature of price movements is often attributed to market psychology, which tends to be very predictable based on emotions like fear or excitement. 

What's the Difference Between Fundamental and Technical Analysis?

Fundamental analysis is a method of evaluating securities by attempting to measure the intrinsic value of a stock. The core assumption of technical analysis, on the other hand, is that all known fundamentals are factored into price; thus, there is no need to pay close attention to them. Technical analysts do not attempt to measure a security's intrinsic value, but instead, use stock charts to identify patterns and trends that might suggest what the security will do in the future.

How Can I Learn Technical Analysis?

There are a variety of ways to learn technical analysis . The first step is to learn the basics of investing, stocks, markets, and financials. This can all be done through books, online courses, online material, and classes. Once the basics are understood, from there you can use the same types of materials but those that focus specifically on technical analysis. Investopedia's course on technical analysis is one specific option.

John J. Murphy. "Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications," Page 23. Penguin, 1999.

CFA Institute Research Foundation. " Technical Analysis: Modern Perspectives ," Page 1.

CMT Association. " Technical Analysis: Three Premises ."

CMT Association. " Enroll in the CMT Program ."

CMT Association. " Level I Waiver for CFA Charterholders ."

case study on technical analysis

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30. Case Study—The Perfect World

Now that you know what charting and technical analysis are all about and that they are not going to replace your current means of stock selection at this time, the pieces can be assembled together in a case study. This involves the major areas of recognizing trends, finding patterns, and using supporting studies to assess the stock market and pick a winning stock.

Here’s the process:

• Determine if conditions are favorable for equity assets using our current analytical techniques (earnings, inflation, etc....).

• If they are fair to good, then determine what sectors of the market would be best to focus upon.

• Now that the best sectors are found, which stocks should you buy?

• What technical tools should ...

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  • What Is a Case Study? | Definition, Examples & Methods

What Is a Case Study? | Definition, Examples & Methods

Published on May 8, 2019 by Shona McCombes . Revised on November 20, 2023.

A case study is a detailed study of a specific subject, such as a person, group, place, event, organization, or phenomenon. Case studies are commonly used in social, educational, clinical, and business research.

A case study research design usually involves qualitative methods , but quantitative methods are sometimes also used. Case studies are good for describing , comparing, evaluating and understanding different aspects of a research problem .

Table of contents

When to do a case study, step 1: select a case, step 2: build a theoretical framework, step 3: collect your data, step 4: describe and analyze the case, other interesting articles.

A case study is an appropriate research design when you want to gain concrete, contextual, in-depth knowledge about a specific real-world subject. It allows you to explore the key characteristics, meanings, and implications of the case.

Case studies are often a good choice in a thesis or dissertation . They keep your project focused and manageable when you don’t have the time or resources to do large-scale research.

You might use just one complex case study where you explore a single subject in depth, or conduct multiple case studies to compare and illuminate different aspects of your research problem.

Case study examples
Research question Case study
What are the ecological effects of wolf reintroduction? Case study of wolf reintroduction in Yellowstone National Park
How do populist politicians use narratives about history to gain support? Case studies of Hungarian prime minister Viktor Orbán and US president Donald Trump
How can teachers implement active learning strategies in mixed-level classrooms? Case study of a local school that promotes active learning
What are the main advantages and disadvantages of wind farms for rural communities? Case studies of three rural wind farm development projects in different parts of the country
How are viral marketing strategies changing the relationship between companies and consumers? Case study of the iPhone X marketing campaign
How do experiences of work in the gig economy differ by gender, race and age? Case studies of Deliveroo and Uber drivers in London

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Once you have developed your problem statement and research questions , you should be ready to choose the specific case that you want to focus on. A good case study should have the potential to:

  • Provide new or unexpected insights into the subject
  • Challenge or complicate existing assumptions and theories
  • Propose practical courses of action to resolve a problem
  • Open up new directions for future research

TipIf your research is more practical in nature and aims to simultaneously investigate an issue as you solve it, consider conducting action research instead.

Unlike quantitative or experimental research , a strong case study does not require a random or representative sample. In fact, case studies often deliberately focus on unusual, neglected, or outlying cases which may shed new light on the research problem.

Example of an outlying case studyIn the 1960s the town of Roseto, Pennsylvania was discovered to have extremely low rates of heart disease compared to the US average. It became an important case study for understanding previously neglected causes of heart disease.

However, you can also choose a more common or representative case to exemplify a particular category, experience or phenomenon.

Example of a representative case studyIn the 1920s, two sociologists used Muncie, Indiana as a case study of a typical American city that supposedly exemplified the changing culture of the US at the time.

While case studies focus more on concrete details than general theories, they should usually have some connection with theory in the field. This way the case study is not just an isolated description, but is integrated into existing knowledge about the topic. It might aim to:

  • Exemplify a theory by showing how it explains the case under investigation
  • Expand on a theory by uncovering new concepts and ideas that need to be incorporated
  • Challenge a theory by exploring an outlier case that doesn’t fit with established assumptions

To ensure that your analysis of the case has a solid academic grounding, you should conduct a literature review of sources related to the topic and develop a theoretical framework . This means identifying key concepts and theories to guide your analysis and interpretation.

There are many different research methods you can use to collect data on your subject. Case studies tend to focus on qualitative data using methods such as interviews , observations , and analysis of primary and secondary sources (e.g., newspaper articles, photographs, official records). Sometimes a case study will also collect quantitative data.

Example of a mixed methods case studyFor a case study of a wind farm development in a rural area, you could collect quantitative data on employment rates and business revenue, collect qualitative data on local people’s perceptions and experiences, and analyze local and national media coverage of the development.

The aim is to gain as thorough an understanding as possible of the case and its context.

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In writing up the case study, you need to bring together all the relevant aspects to give as complete a picture as possible of the subject.

How you report your findings depends on the type of research you are doing. Some case studies are structured like a standard scientific paper or thesis , with separate sections or chapters for the methods , results and discussion .

Others are written in a more narrative style, aiming to explore the case from various angles and analyze its meanings and implications (for example, by using textual analysis or discourse analysis ).

In all cases, though, make sure to give contextual details about the case, connect it back to the literature and theory, and discuss how it fits into wider patterns or debates.

If you want to know more about statistics , methodology , or research bias , make sure to check out some of our other articles with explanations and examples.

  • Normal distribution
  • Degrees of freedom
  • Null hypothesis
  • Discourse analysis
  • Control groups
  • Mixed methods research
  • Non-probability sampling
  • Quantitative research
  • Ecological validity

Research bias

  • Rosenthal effect
  • Implicit bias
  • Cognitive bias
  • Selection bias
  • Negativity bias
  • Status quo bias

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Applied Technical Analysis for Equity Markets

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Applied Technical Analysis for Equity Markets Overview

Applied Technical Analysis for Equity Markets builds upon the concepts covered in CMSA’s Trading Using Technical Analysis course and applies the technical analysis tools to analyze three real-world case studies.

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  • Line charts, bar charts, candlestick charts
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What the Case Study Method Really Teaches

  • Nitin Nohria

case study on technical analysis

Seven meta-skills that stick even if the cases fade from memory.

It’s been 100 years since Harvard Business School began using the case study method. Beyond teaching specific subject matter, the case study method excels in instilling meta-skills in students. This article explains the importance of seven such skills: preparation, discernment, bias recognition, judgement, collaboration, curiosity, and self-confidence.

During my decade as dean of Harvard Business School, I spent hundreds of hours talking with our alumni. To enliven these conversations, I relied on a favorite question: “What was the most important thing you learned from your time in our MBA program?”

  • Nitin Nohria is the George F. Baker Jr. and Distinguished Service University Professor. He served as the 10th dean of Harvard Business School, from 2010 to 2020.

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What is a technical case study?

Oana Baetica

Unless you've been hiding under a rock, chances are you’ve heard all about case studies and application stories being used for marketing purposes, especially in a technical, industrial and engineering context. But the mere idea of producing almost a thousand words of good quality copy and then getting them approved by all parties involved sounds like an insurmountable amount of work. Nonetheless, the task can be easily managed if you know what exactly a case study is and how to tackle each step in developing one.

What is a technical case study?

A technical case study is an analysis of a customer project that used your company’s products and services. It tells the story of how the customer approached the company, what the situation was and what issue they wanted to solve. The foundation of the case study is identifying the customer problem and then recommending and implementing the solution. The conclusion focuses on how the solution was implemented, talks about improvements and overall results and shows why the project was successful.

Characteristics:

  • They require approval from other parties involved. Unlike other types of content you create, case studies require that third party endorsement. This is why before putting pen to paper you should first speak to the customer or the end user and get their approval to proceed with the case study. This prior approval is essential, as without explicit approval from the customer the case study does not have a leg to stand on.
  • They are longer than other pieces of content and structured to tell a compelling story. Normally case studies contain more information than press releases and as such, they are double in size and require details about the context, the problem you company solved on behalf of the clients, installation journey, outcomes and long-term results.
  • They focus on two paradigms: problem-solution-conclusion and feature-benefit relationships. These two facets are the most interesting to your target audience.

Every good case study should be built around the third-party endorsement and as such, quotes and personal testimonies from decision makers are crucial. They give extra weight to the story and allow the reader to put themselves into your customer’s shoes. 

Size/format

As explained before, written case studies are about 700-1000 words long and they follow the traditional story format: introduction, problem and context, discussion, solution and outcomes. For information that is not essential to the case study but adds additional details, box outs and graphs are suitable. They can contain facts and figures, information about the customer, the boiler plate (information about your company), quotes and useful website links. Essential for any application story are pictures and if possible videos of the product in action. Some companies use interview-style videos with talking heads explaining the technology or even giving verbal testimonies. 

We've created a roadmap to help you share your company's customer success stories. 

Get your template for writing case studies

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Organizing Your Social Sciences Research Assignments

  • Annotated Bibliography
  • Analyzing a Scholarly Journal Article
  • Group Presentations
  • Dealing with Nervousness
  • Using Visual Aids
  • Grading Someone Else's Paper
  • Types of Structured Group Activities
  • Group Project Survival Skills
  • Leading a Class Discussion
  • Multiple Book Review Essay
  • Reviewing Collected Works
  • Writing a Case Analysis Paper
  • Writing a Case Study
  • About Informed Consent
  • Writing Field Notes
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  • Writing a Reflective Paper
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  • Generative AI and Writing
  • Acknowledgments

Definition and Introduction

Case analysis is a problem-based teaching and learning method that involves critically analyzing complex scenarios within an organizational setting for the purpose of placing the student in a “real world” situation and applying reflection and critical thinking skills to contemplate appropriate solutions, decisions, or recommended courses of action. It is considered a more effective teaching technique than in-class role playing or simulation activities. The analytical process is often guided by questions provided by the instructor that ask students to contemplate relationships between the facts and critical incidents described in the case.

Cases generally include both descriptive and statistical elements and rely on students applying abductive reasoning to develop and argue for preferred or best outcomes [i.e., case scenarios rarely have a single correct or perfect answer based on the evidence provided]. Rather than emphasizing theories or concepts, case analysis assignments emphasize building a bridge of relevancy between abstract thinking and practical application and, by so doing, teaches the value of both within a specific area of professional practice.

Given this, the purpose of a case analysis paper is to present a structured and logically organized format for analyzing the case situation. It can be assigned to students individually or as a small group assignment and it may include an in-class presentation component. Case analysis is predominately taught in economics and business-related courses, but it is also a method of teaching and learning found in other applied social sciences disciplines, such as, social work, public relations, education, journalism, and public administration.

Ellet, William. The Case Study Handbook: A Student's Guide . Revised Edition. Boston, MA: Harvard Business School Publishing, 2018; Christoph Rasche and Achim Seisreiner. Guidelines for Business Case Analysis . University of Potsdam; Writing a Case Analysis . Writing Center, Baruch College; Volpe, Guglielmo. "Case Teaching in Economics: History, Practice and Evidence." Cogent Economics and Finance 3 (December 2015). doi:https://doi.org/10.1080/23322039.2015.1120977.

How to Approach Writing a Case Analysis Paper

The organization and structure of a case analysis paper can vary depending on the organizational setting, the situation, and how your professor wants you to approach the assignment. Nevertheless, preparing to write a case analysis paper involves several important steps. As Hawes notes, a case analysis assignment “...is useful in developing the ability to get to the heart of a problem, analyze it thoroughly, and to indicate the appropriate solution as well as how it should be implemented” [p.48]. This statement encapsulates how you should approach preparing to write a case analysis paper.

Before you begin to write your paper, consider the following analytical procedures:

  • Review the case to get an overview of the situation . A case can be only a few pages in length, however, it is most often very lengthy and contains a significant amount of detailed background information and statistics, with multilayered descriptions of the scenario, the roles and behaviors of various stakeholder groups, and situational events. Therefore, a quick reading of the case will help you gain an overall sense of the situation and illuminate the types of issues and problems that you will need to address in your paper. If your professor has provided questions intended to help frame your analysis, use them to guide your initial reading of the case.
  • Read the case thoroughly . After gaining a general overview of the case, carefully read the content again with the purpose of understanding key circumstances, events, and behaviors among stakeholder groups. Look for information or data that appears contradictory, extraneous, or misleading. At this point, you should be taking notes as you read because this will help you develop a general outline of your paper. The aim is to obtain a complete understanding of the situation so that you can begin contemplating tentative answers to any questions your professor has provided or, if they have not provided, developing answers to your own questions about the case scenario and its connection to the course readings,lectures, and class discussions.
  • Determine key stakeholder groups, issues, and events and the relationships they all have to each other . As you analyze the content, pay particular attention to identifying individuals, groups, or organizations described in the case and identify evidence of any problems or issues of concern that impact the situation in a negative way. Other things to look for include identifying any assumptions being made by or about each stakeholder, potential biased explanations or actions, explicit demands or ultimatums , and the underlying concerns that motivate these behaviors among stakeholders. The goal at this stage is to develop a comprehensive understanding of the situational and behavioral dynamics of the case and the explicit and implicit consequences of each of these actions.
  • Identify the core problems . The next step in most case analysis assignments is to discern what the core [i.e., most damaging, detrimental, injurious] problems are within the organizational setting and to determine their implications. The purpose at this stage of preparing to write your analysis paper is to distinguish between the symptoms of core problems and the core problems themselves and to decide which of these must be addressed immediately and which problems do not appear critical but may escalate over time. Identify evidence from the case to support your decisions by determining what information or data is essential to addressing the core problems and what information is not relevant or is misleading.
  • Explore alternative solutions . As noted, case analysis scenarios rarely have only one correct answer. Therefore, it is important to keep in mind that the process of analyzing the case and diagnosing core problems, while based on evidence, is a subjective process open to various avenues of interpretation. This means that you must consider alternative solutions or courses of action by critically examining strengths and weaknesses, risk factors, and the differences between short and long-term solutions. For each possible solution or course of action, consider the consequences they may have related to their implementation and how these recommendations might lead to new problems. Also, consider thinking about your recommended solutions or courses of action in relation to issues of fairness, equity, and inclusion.
  • Decide on a final set of recommendations . The last stage in preparing to write a case analysis paper is to assert an opinion or viewpoint about the recommendations needed to help resolve the core problems as you see them and to make a persuasive argument for supporting this point of view. Prepare a clear rationale for your recommendations based on examining each element of your analysis. Anticipate possible obstacles that could derail their implementation. Consider any counter-arguments that could be made concerning the validity of your recommended actions. Finally, describe a set of criteria and measurable indicators that could be applied to evaluating the effectiveness of your implementation plan.

Use these steps as the framework for writing your paper. Remember that the more detailed you are in taking notes as you critically examine each element of the case, the more information you will have to draw from when you begin to write. This will save you time.

NOTE : If the process of preparing to write a case analysis paper is assigned as a student group project, consider having each member of the group analyze a specific element of the case, including drafting answers to the corresponding questions used by your professor to frame the analysis. This will help make the analytical process more efficient and ensure that the distribution of work is equitable. This can also facilitate who is responsible for drafting each part of the final case analysis paper and, if applicable, the in-class presentation.

Framework for Case Analysis . College of Management. University of Massachusetts; Hawes, Jon M. "Teaching is Not Telling: The Case Method as a Form of Interactive Learning." Journal for Advancement of Marketing Education 5 (Winter 2004): 47-54; Rasche, Christoph and Achim Seisreiner. Guidelines for Business Case Analysis . University of Potsdam; Writing a Case Study Analysis . University of Arizona Global Campus Writing Center; Van Ness, Raymond K. A Guide to Case Analysis . School of Business. State University of New York, Albany; Writing a Case Analysis . Business School, University of New South Wales.

Structure and Writing Style

A case analysis paper should be detailed, concise, persuasive, clearly written, and professional in tone and in the use of language . As with other forms of college-level academic writing, declarative statements that convey information, provide a fact, or offer an explanation or any recommended courses of action should be based on evidence. If allowed by your professor, any external sources used to support your analysis, such as course readings, should be properly cited under a list of references. The organization and structure of case analysis papers can vary depending on your professor’s preferred format, but its structure generally follows the steps used for analyzing the case.

Introduction

The introduction should provide a succinct but thorough descriptive overview of the main facts, issues, and core problems of the case . The introduction should also include a brief summary of the most relevant details about the situation and organizational setting. This includes defining the theoretical framework or conceptual model on which any questions were used to frame your analysis.

Following the rules of most college-level research papers, the introduction should then inform the reader how the paper will be organized. This includes describing the major sections of the paper and the order in which they will be presented. Unless you are told to do so by your professor, you do not need to preview your final recommendations in the introduction. U nlike most college-level research papers , the introduction does not include a statement about the significance of your findings because a case analysis assignment does not involve contributing new knowledge about a research problem.

Background Analysis

Background analysis can vary depending on any guiding questions provided by your professor and the underlying concept or theory that the case is based upon. In general, however, this section of your paper should focus on:

  • Providing an overarching analysis of problems identified from the case scenario, including identifying events that stakeholders find challenging or troublesome,
  • Identifying assumptions made by each stakeholder and any apparent biases they may exhibit,
  • Describing any demands or claims made by or forced upon key stakeholders, and
  • Highlighting any issues of concern or complaints expressed by stakeholders in response to those demands or claims.

These aspects of the case are often in the form of behavioral responses expressed by individuals or groups within the organizational setting. However, note that problems in a case situation can also be reflected in data [or the lack thereof] and in the decision-making, operational, cultural, or institutional structure of the organization. Additionally, demands or claims can be either internal and external to the organization [e.g., a case analysis involving a president considering arms sales to Saudi Arabia could include managing internal demands from White House advisors as well as demands from members of Congress].

Throughout this section, present all relevant evidence from the case that supports your analysis. Do not simply claim there is a problem, an assumption, a demand, or a concern; tell the reader what part of the case informed how you identified these background elements.

Identification of Problems

In most case analysis assignments, there are problems, and then there are problems . Each problem can reflect a multitude of underlying symptoms that are detrimental to the interests of the organization. The purpose of identifying problems is to teach students how to differentiate between problems that vary in severity, impact, and relative importance. Given this, problems can be described in three general forms: those that must be addressed immediately, those that should be addressed but the impact is not severe, and those that do not require immediate attention and can be set aside for the time being.

All of the problems you identify from the case should be identified in this section of your paper, with a description based on evidence explaining the problem variances. If the assignment asks you to conduct research to further support your assessment of the problems, include this in your explanation. Remember to cite those sources in a list of references. Use specific evidence from the case and apply appropriate concepts, theories, and models discussed in class or in relevant course readings to highlight and explain the key problems [or problem] that you believe must be solved immediately and describe the underlying symptoms and why they are so critical.

Alternative Solutions

This section is where you provide specific, realistic, and evidence-based solutions to the problems you have identified and make recommendations about how to alleviate the underlying symptomatic conditions impacting the organizational setting. For each solution, you must explain why it was chosen and provide clear evidence to support your reasoning. This can include, for example, course readings and class discussions as well as research resources, such as, books, journal articles, research reports, or government documents. In some cases, your professor may encourage you to include personal, anecdotal experiences as evidence to support why you chose a particular solution or set of solutions. Using anecdotal evidence helps promote reflective thinking about the process of determining what qualifies as a core problem and relevant solution .

Throughout this part of the paper, keep in mind the entire array of problems that must be addressed and describe in detail the solutions that might be implemented to resolve these problems.

Recommended Courses of Action

In some case analysis assignments, your professor may ask you to combine the alternative solutions section with your recommended courses of action. However, it is important to know the difference between the two. A solution refers to the answer to a problem. A course of action refers to a procedure or deliberate sequence of activities adopted to proactively confront a situation, often in the context of accomplishing a goal. In this context, proposed courses of action are based on your analysis of alternative solutions. Your description and justification for pursuing each course of action should represent the overall plan for implementing your recommendations.

For each course of action, you need to explain the rationale for your recommendation in a way that confronts challenges, explains risks, and anticipates any counter-arguments from stakeholders. Do this by considering the strengths and weaknesses of each course of action framed in relation to how the action is expected to resolve the core problems presented, the possible ways the action may affect remaining problems, and how the recommended action will be perceived by each stakeholder.

In addition, you should describe the criteria needed to measure how well the implementation of these actions is working and explain which individuals or groups are responsible for ensuring your recommendations are successful. In addition, always consider the law of unintended consequences. Outline difficulties that may arise in implementing each course of action and describe how implementing the proposed courses of action [either individually or collectively] may lead to new problems [both large and small].

Throughout this section, you must consider the costs and benefits of recommending your courses of action in relation to uncertainties or missing information and the negative consequences of success.

The conclusion should be brief and introspective. Unlike a research paper, the conclusion in a case analysis paper does not include a summary of key findings and their significance, a statement about how the study contributed to existing knowledge, or indicate opportunities for future research.

Begin by synthesizing the core problems presented in the case and the relevance of your recommended solutions. This can include an explanation of what you have learned about the case in the context of your answers to the questions provided by your professor. The conclusion is also where you link what you learned from analyzing the case with the course readings or class discussions. This can further demonstrate your understanding of the relationships between the practical case situation and the theoretical and abstract content of assigned readings and other course content.

Problems to Avoid

The literature on case analysis assignments often includes examples of difficulties students have with applying methods of critical analysis and effectively reporting the results of their assessment of the situation. A common reason cited by scholars is that the application of this type of teaching and learning method is limited to applied fields of social and behavioral sciences and, as a result, writing a case analysis paper can be unfamiliar to most students entering college.

After you have drafted your paper, proofread the narrative flow and revise any of these common errors:

  • Unnecessary detail in the background section . The background section should highlight the essential elements of the case based on your analysis. Focus on summarizing the facts and highlighting the key factors that become relevant in the other sections of the paper by eliminating any unnecessary information.
  • Analysis relies too much on opinion . Your analysis is interpretive, but the narrative must be connected clearly to evidence from the case and any models and theories discussed in class or in course readings. Any positions or arguments you make should be supported by evidence.
  • Analysis does not focus on the most important elements of the case . Your paper should provide a thorough overview of the case. However, the analysis should focus on providing evidence about what you identify are the key events, stakeholders, issues, and problems. Emphasize what you identify as the most critical aspects of the case to be developed throughout your analysis. Be thorough but succinct.
  • Writing is too descriptive . A paper with too much descriptive information detracts from your analysis of the complexities of the case situation. Questions about what happened, where, when, and by whom should only be included as essential information leading to your examination of questions related to why, how, and for what purpose.
  • Inadequate definition of a core problem and associated symptoms . A common error found in case analysis papers is recommending a solution or course of action without adequately defining or demonstrating that you understand the problem. Make sure you have clearly described the problem and its impact and scope within the organizational setting. Ensure that you have adequately described the root causes w hen describing the symptoms of the problem.
  • Recommendations lack specificity . Identify any use of vague statements and indeterminate terminology, such as, “A particular experience” or “a large increase to the budget.” These statements cannot be measured and, as a result, there is no way to evaluate their successful implementation. Provide specific data and use direct language in describing recommended actions.
  • Unrealistic, exaggerated, or unattainable recommendations . Review your recommendations to ensure that they are based on the situational facts of the case. Your recommended solutions and courses of action must be based on realistic assumptions and fit within the constraints of the situation. Also note that the case scenario has already happened, therefore, any speculation or arguments about what could have occurred if the circumstances were different should be revised or eliminated.

Bee, Lian Song et al. "Business Students' Perspectives on Case Method Coaching for Problem-Based Learning: Impacts on Student Engagement and Learning Performance in Higher Education." Education & Training 64 (2022): 416-432; The Case Analysis . Fred Meijer Center for Writing and Michigan Authors. Grand Valley State University; Georgallis, Panikos and Kayleigh Bruijn. "Sustainability Teaching using Case-Based Debates." Journal of International Education in Business 15 (2022): 147-163; Hawes, Jon M. "Teaching is Not Telling: The Case Method as a Form of Interactive Learning." Journal for Advancement of Marketing Education 5 (Winter 2004): 47-54; Georgallis, Panikos, and Kayleigh Bruijn. "Sustainability Teaching Using Case-based Debates." Journal of International Education in Business 15 (2022): 147-163; .Dean,  Kathy Lund and Charles J. Fornaciari. "How to Create and Use Experiential Case-Based Exercises in a Management Classroom." Journal of Management Education 26 (October 2002): 586-603; Klebba, Joanne M. and Janet G. Hamilton. "Structured Case Analysis: Developing Critical Thinking Skills in a Marketing Case Course." Journal of Marketing Education 29 (August 2007): 132-137, 139; Klein, Norman. "The Case Discussion Method Revisited: Some Questions about Student Skills." Exchange: The Organizational Behavior Teaching Journal 6 (November 1981): 30-32; Mukherjee, Arup. "Effective Use of In-Class Mini Case Analysis for Discovery Learning in an Undergraduate MIS Course." The Journal of Computer Information Systems 40 (Spring 2000): 15-23; Pessoa, Silviaet al. "Scaffolding the Case Analysis in an Organizational Behavior Course: Making Analytical Language Explicit." Journal of Management Education 46 (2022): 226-251: Ramsey, V. J. and L. D. Dodge. "Case Analysis: A Structured Approach." Exchange: The Organizational Behavior Teaching Journal 6 (November 1981): 27-29; Schweitzer, Karen. "How to Write and Format a Business Case Study." ThoughtCo. https://www.thoughtco.com/how-to-write-and-format-a-business-case-study-466324 (accessed December 5, 2022); Reddy, C. D. "Teaching Research Methodology: Everything's a Case." Electronic Journal of Business Research Methods 18 (December 2020): 178-188; Volpe, Guglielmo. "Case Teaching in Economics: History, Practice and Evidence." Cogent Economics and Finance 3 (December 2015). doi:https://doi.org/10.1080/23322039.2015.1120977.

Writing Tip

Ca se Study and Case Analysis Are Not the Same!

Confusion often exists between what it means to write a paper that uses a case study research design and writing a paper that analyzes a case; they are two different types of approaches to learning in the social and behavioral sciences. Professors as well as educational researchers contribute to this confusion because they often use the term "case study" when describing the subject of analysis for a case analysis paper. But you are not studying a case for the purpose of generating a comprehensive, multi-faceted understanding of a research problem. R ather, you are critically analyzing a specific scenario to argue logically for recommended solutions and courses of action that lead to optimal outcomes applicable to professional practice.

To avoid any confusion, here are twelve characteristics that delineate the differences between writing a paper using the case study research method and writing a case analysis paper:

  • Case study is a method of in-depth research and rigorous inquiry ; case analysis is a reliable method of teaching and learning . A case study is a modality of research that investigates a phenomenon for the purpose of creating new knowledge, solving a problem, or testing a hypothesis using empirical evidence derived from the case being studied. Often, the results are used to generalize about a larger population or within a wider context. The writing adheres to the traditional standards of a scholarly research study. A case analysis is a pedagogical tool used to teach students how to reflect and think critically about a practical, real-life problem in an organizational setting.
  • The researcher is responsible for identifying the case to study; a case analysis is assigned by your professor . As the researcher, you choose the case study to investigate in support of obtaining new knowledge and understanding about the research problem. The case in a case analysis assignment is almost always provided, and sometimes written, by your professor and either given to every student in class to analyze individually or to a small group of students, or students select a case to analyze from a predetermined list.
  • A case study is indeterminate and boundless; a case analysis is predetermined and confined . A case study can be almost anything [see item 9 below] as long as it relates directly to examining the research problem. This relationship is the only limit to what a researcher can choose as the subject of their case study. The content of a case analysis is determined by your professor and its parameters are well-defined and limited to elucidating insights of practical value applied to practice.
  • Case study is fact-based and describes actual events or situations; case analysis can be entirely fictional or adapted from an actual situation . The entire content of a case study must be grounded in reality to be a valid subject of investigation in an empirical research study. A case analysis only needs to set the stage for critically examining a situation in practice and, therefore, can be entirely fictional or adapted, all or in-part, from an actual situation.
  • Research using a case study method must adhere to principles of intellectual honesty and academic integrity; a case analysis scenario can include misleading or false information . A case study paper must report research objectively and factually to ensure that any findings are understood to be logically correct and trustworthy. A case analysis scenario may include misleading or false information intended to deliberately distract from the central issues of the case. The purpose is to teach students how to sort through conflicting or useless information in order to come up with the preferred solution. Any use of misleading or false information in academic research is considered unethical.
  • Case study is linked to a research problem; case analysis is linked to a practical situation or scenario . In the social sciences, the subject of an investigation is most often framed as a problem that must be researched in order to generate new knowledge leading to a solution. Case analysis narratives are grounded in real life scenarios for the purpose of examining the realities of decision-making behavior and processes within organizational settings. A case analysis assignments include a problem or set of problems to be analyzed. However, the goal is centered around the act of identifying and evaluating courses of action leading to best possible outcomes.
  • The purpose of a case study is to create new knowledge through research; the purpose of a case analysis is to teach new understanding . Case studies are a choice of methodological design intended to create new knowledge about resolving a research problem. A case analysis is a mode of teaching and learning intended to create new understanding and an awareness of uncertainty applied to practice through acts of critical thinking and reflection.
  • A case study seeks to identify the best possible solution to a research problem; case analysis can have an indeterminate set of solutions or outcomes . Your role in studying a case is to discover the most logical, evidence-based ways to address a research problem. A case analysis assignment rarely has a single correct answer because one of the goals is to force students to confront the real life dynamics of uncertainly, ambiguity, and missing or conflicting information within professional practice. Under these conditions, a perfect outcome or solution almost never exists.
  • Case study is unbounded and relies on gathering external information; case analysis is a self-contained subject of analysis . The scope of a case study chosen as a method of research is bounded. However, the researcher is free to gather whatever information and data is necessary to investigate its relevance to understanding the research problem. For a case analysis assignment, your professor will often ask you to examine solutions or recommended courses of action based solely on facts and information from the case.
  • Case study can be a person, place, object, issue, event, condition, or phenomenon; a case analysis is a carefully constructed synopsis of events, situations, and behaviors . The research problem dictates the type of case being studied and, therefore, the design can encompass almost anything tangible as long as it fulfills the objective of generating new knowledge and understanding. A case analysis is in the form of a narrative containing descriptions of facts, situations, processes, rules, and behaviors within a particular setting and under a specific set of circumstances.
  • Case study can represent an open-ended subject of inquiry; a case analysis is a narrative about something that has happened in the past . A case study is not restricted by time and can encompass an event or issue with no temporal limit or end. For example, the current war in Ukraine can be used as a case study of how medical personnel help civilians during a large military conflict, even though circumstances around this event are still evolving. A case analysis can be used to elicit critical thinking about current or future situations in practice, but the case itself is a narrative about something finite and that has taken place in the past.
  • Multiple case studies can be used in a research study; case analysis involves examining a single scenario . Case study research can use two or more cases to examine a problem, often for the purpose of conducting a comparative investigation intended to discover hidden relationships, document emerging trends, or determine variations among different examples. A case analysis assignment typically describes a stand-alone, self-contained situation and any comparisons among cases are conducted during in-class discussions and/or student presentations.

The Case Analysis . Fred Meijer Center for Writing and Michigan Authors. Grand Valley State University; Mills, Albert J. , Gabrielle Durepos, and Eiden Wiebe, editors. Encyclopedia of Case Study Research . Thousand Oaks, CA: SAGE Publications, 2010; Ramsey, V. J. and L. D. Dodge. "Case Analysis: A Structured Approach." Exchange: The Organizational Behavior Teaching Journal 6 (November 1981): 27-29; Yin, Robert K. Case Study Research and Applications: Design and Methods . 6th edition. Thousand Oaks, CA: Sage, 2017; Crowe, Sarah et al. “The Case Study Approach.” BMC Medical Research Methodology 11 (2011):  doi: 10.1186/1471-2288-11-100; Yin, Robert K. Case Study Research: Design and Methods . 4th edition. Thousand Oaks, CA: Sage Publishing; 1994.

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Research Method

Home » Case Study – Methods, Examples and Guide

Case Study – Methods, Examples and Guide

Table of Contents

Case Study Research

A case study is a research method that involves an in-depth examination and analysis of a particular phenomenon or case, such as an individual, organization, community, event, or situation.

It is a qualitative research approach that aims to provide a detailed and comprehensive understanding of the case being studied. Case studies typically involve multiple sources of data, including interviews, observations, documents, and artifacts, which are analyzed using various techniques, such as content analysis, thematic analysis, and grounded theory. The findings of a case study are often used to develop theories, inform policy or practice, or generate new research questions.

Types of Case Study

Types and Methods of Case Study are as follows:

Single-Case Study

A single-case study is an in-depth analysis of a single case. This type of case study is useful when the researcher wants to understand a specific phenomenon in detail.

For Example , A researcher might conduct a single-case study on a particular individual to understand their experiences with a particular health condition or a specific organization to explore their management practices. The researcher collects data from multiple sources, such as interviews, observations, and documents, and uses various techniques to analyze the data, such as content analysis or thematic analysis. The findings of a single-case study are often used to generate new research questions, develop theories, or inform policy or practice.

Multiple-Case Study

A multiple-case study involves the analysis of several cases that are similar in nature. This type of case study is useful when the researcher wants to identify similarities and differences between the cases.

For Example, a researcher might conduct a multiple-case study on several companies to explore the factors that contribute to their success or failure. The researcher collects data from each case, compares and contrasts the findings, and uses various techniques to analyze the data, such as comparative analysis or pattern-matching. The findings of a multiple-case study can be used to develop theories, inform policy or practice, or generate new research questions.

Exploratory Case Study

An exploratory case study is used to explore a new or understudied phenomenon. This type of case study is useful when the researcher wants to generate hypotheses or theories about the phenomenon.

For Example, a researcher might conduct an exploratory case study on a new technology to understand its potential impact on society. The researcher collects data from multiple sources, such as interviews, observations, and documents, and uses various techniques to analyze the data, such as grounded theory or content analysis. The findings of an exploratory case study can be used to generate new research questions, develop theories, or inform policy or practice.

Descriptive Case Study

A descriptive case study is used to describe a particular phenomenon in detail. This type of case study is useful when the researcher wants to provide a comprehensive account of the phenomenon.

For Example, a researcher might conduct a descriptive case study on a particular community to understand its social and economic characteristics. The researcher collects data from multiple sources, such as interviews, observations, and documents, and uses various techniques to analyze the data, such as content analysis or thematic analysis. The findings of a descriptive case study can be used to inform policy or practice or generate new research questions.

Instrumental Case Study

An instrumental case study is used to understand a particular phenomenon that is instrumental in achieving a particular goal. This type of case study is useful when the researcher wants to understand the role of the phenomenon in achieving the goal.

For Example, a researcher might conduct an instrumental case study on a particular policy to understand its impact on achieving a particular goal, such as reducing poverty. The researcher collects data from multiple sources, such as interviews, observations, and documents, and uses various techniques to analyze the data, such as content analysis or thematic analysis. The findings of an instrumental case study can be used to inform policy or practice or generate new research questions.

Case Study Data Collection Methods

Here are some common data collection methods for case studies:

Interviews involve asking questions to individuals who have knowledge or experience relevant to the case study. Interviews can be structured (where the same questions are asked to all participants) or unstructured (where the interviewer follows up on the responses with further questions). Interviews can be conducted in person, over the phone, or through video conferencing.

Observations

Observations involve watching and recording the behavior and activities of individuals or groups relevant to the case study. Observations can be participant (where the researcher actively participates in the activities) or non-participant (where the researcher observes from a distance). Observations can be recorded using notes, audio or video recordings, or photographs.

Documents can be used as a source of information for case studies. Documents can include reports, memos, emails, letters, and other written materials related to the case study. Documents can be collected from the case study participants or from public sources.

Surveys involve asking a set of questions to a sample of individuals relevant to the case study. Surveys can be administered in person, over the phone, through mail or email, or online. Surveys can be used to gather information on attitudes, opinions, or behaviors related to the case study.

Artifacts are physical objects relevant to the case study. Artifacts can include tools, equipment, products, or other objects that provide insights into the case study phenomenon.

How to conduct Case Study Research

Conducting a case study research involves several steps that need to be followed to ensure the quality and rigor of the study. Here are the steps to conduct case study research:

  • Define the research questions: The first step in conducting a case study research is to define the research questions. The research questions should be specific, measurable, and relevant to the case study phenomenon under investigation.
  • Select the case: The next step is to select the case or cases to be studied. The case should be relevant to the research questions and should provide rich and diverse data that can be used to answer the research questions.
  • Collect data: Data can be collected using various methods, such as interviews, observations, documents, surveys, and artifacts. The data collection method should be selected based on the research questions and the nature of the case study phenomenon.
  • Analyze the data: The data collected from the case study should be analyzed using various techniques, such as content analysis, thematic analysis, or grounded theory. The analysis should be guided by the research questions and should aim to provide insights and conclusions relevant to the research questions.
  • Draw conclusions: The conclusions drawn from the case study should be based on the data analysis and should be relevant to the research questions. The conclusions should be supported by evidence and should be clearly stated.
  • Validate the findings: The findings of the case study should be validated by reviewing the data and the analysis with participants or other experts in the field. This helps to ensure the validity and reliability of the findings.
  • Write the report: The final step is to write the report of the case study research. The report should provide a clear description of the case study phenomenon, the research questions, the data collection methods, the data analysis, the findings, and the conclusions. The report should be written in a clear and concise manner and should follow the guidelines for academic writing.

Examples of Case Study

Here are some examples of case study research:

  • The Hawthorne Studies : Conducted between 1924 and 1932, the Hawthorne Studies were a series of case studies conducted by Elton Mayo and his colleagues to examine the impact of work environment on employee productivity. The studies were conducted at the Hawthorne Works plant of the Western Electric Company in Chicago and included interviews, observations, and experiments.
  • The Stanford Prison Experiment: Conducted in 1971, the Stanford Prison Experiment was a case study conducted by Philip Zimbardo to examine the psychological effects of power and authority. The study involved simulating a prison environment and assigning participants to the role of guards or prisoners. The study was controversial due to the ethical issues it raised.
  • The Challenger Disaster: The Challenger Disaster was a case study conducted to examine the causes of the Space Shuttle Challenger explosion in 1986. The study included interviews, observations, and analysis of data to identify the technical, organizational, and cultural factors that contributed to the disaster.
  • The Enron Scandal: The Enron Scandal was a case study conducted to examine the causes of the Enron Corporation’s bankruptcy in 2001. The study included interviews, analysis of financial data, and review of documents to identify the accounting practices, corporate culture, and ethical issues that led to the company’s downfall.
  • The Fukushima Nuclear Disaster : The Fukushima Nuclear Disaster was a case study conducted to examine the causes of the nuclear accident that occurred at the Fukushima Daiichi Nuclear Power Plant in Japan in 2011. The study included interviews, analysis of data, and review of documents to identify the technical, organizational, and cultural factors that contributed to the disaster.

Application of Case Study

Case studies have a wide range of applications across various fields and industries. Here are some examples:

Business and Management

Case studies are widely used in business and management to examine real-life situations and develop problem-solving skills. Case studies can help students and professionals to develop a deep understanding of business concepts, theories, and best practices.

Case studies are used in healthcare to examine patient care, treatment options, and outcomes. Case studies can help healthcare professionals to develop critical thinking skills, diagnose complex medical conditions, and develop effective treatment plans.

Case studies are used in education to examine teaching and learning practices. Case studies can help educators to develop effective teaching strategies, evaluate student progress, and identify areas for improvement.

Social Sciences

Case studies are widely used in social sciences to examine human behavior, social phenomena, and cultural practices. Case studies can help researchers to develop theories, test hypotheses, and gain insights into complex social issues.

Law and Ethics

Case studies are used in law and ethics to examine legal and ethical dilemmas. Case studies can help lawyers, policymakers, and ethical professionals to develop critical thinking skills, analyze complex cases, and make informed decisions.

Purpose of Case Study

The purpose of a case study is to provide a detailed analysis of a specific phenomenon, issue, or problem in its real-life context. A case study is a qualitative research method that involves the in-depth exploration and analysis of a particular case, which can be an individual, group, organization, event, or community.

The primary purpose of a case study is to generate a comprehensive and nuanced understanding of the case, including its history, context, and dynamics. Case studies can help researchers to identify and examine the underlying factors, processes, and mechanisms that contribute to the case and its outcomes. This can help to develop a more accurate and detailed understanding of the case, which can inform future research, practice, or policy.

Case studies can also serve other purposes, including:

  • Illustrating a theory or concept: Case studies can be used to illustrate and explain theoretical concepts and frameworks, providing concrete examples of how they can be applied in real-life situations.
  • Developing hypotheses: Case studies can help to generate hypotheses about the causal relationships between different factors and outcomes, which can be tested through further research.
  • Providing insight into complex issues: Case studies can provide insights into complex and multifaceted issues, which may be difficult to understand through other research methods.
  • Informing practice or policy: Case studies can be used to inform practice or policy by identifying best practices, lessons learned, or areas for improvement.

Advantages of Case Study Research

There are several advantages of case study research, including:

  • In-depth exploration: Case study research allows for a detailed exploration and analysis of a specific phenomenon, issue, or problem in its real-life context. This can provide a comprehensive understanding of the case and its dynamics, which may not be possible through other research methods.
  • Rich data: Case study research can generate rich and detailed data, including qualitative data such as interviews, observations, and documents. This can provide a nuanced understanding of the case and its complexity.
  • Holistic perspective: Case study research allows for a holistic perspective of the case, taking into account the various factors, processes, and mechanisms that contribute to the case and its outcomes. This can help to develop a more accurate and comprehensive understanding of the case.
  • Theory development: Case study research can help to develop and refine theories and concepts by providing empirical evidence and concrete examples of how they can be applied in real-life situations.
  • Practical application: Case study research can inform practice or policy by identifying best practices, lessons learned, or areas for improvement.
  • Contextualization: Case study research takes into account the specific context in which the case is situated, which can help to understand how the case is influenced by the social, cultural, and historical factors of its environment.

Limitations of Case Study Research

There are several limitations of case study research, including:

  • Limited generalizability : Case studies are typically focused on a single case or a small number of cases, which limits the generalizability of the findings. The unique characteristics of the case may not be applicable to other contexts or populations, which may limit the external validity of the research.
  • Biased sampling: Case studies may rely on purposive or convenience sampling, which can introduce bias into the sample selection process. This may limit the representativeness of the sample and the generalizability of the findings.
  • Subjectivity: Case studies rely on the interpretation of the researcher, which can introduce subjectivity into the analysis. The researcher’s own biases, assumptions, and perspectives may influence the findings, which may limit the objectivity of the research.
  • Limited control: Case studies are typically conducted in naturalistic settings, which limits the control that the researcher has over the environment and the variables being studied. This may limit the ability to establish causal relationships between variables.
  • Time-consuming: Case studies can be time-consuming to conduct, as they typically involve a detailed exploration and analysis of a specific case. This may limit the feasibility of conducting multiple case studies or conducting case studies in a timely manner.
  • Resource-intensive: Case studies may require significant resources, including time, funding, and expertise. This may limit the ability of researchers to conduct case studies in resource-constrained settings.

About the author

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Muhammad Hassan

Researcher, Academic Writer, Web developer

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Data Analytics Case Study: Complete Guide in 2024

Data Analytics Case Study: Complete Guide in 2024

What are data analytics case study interviews.

When you’re trying to land a data analyst job, the last thing to stand in your way is the data analytics case study interview.

One reason they’re so challenging is that case studies don’t typically have a right or wrong answer.

Instead, case study interviews require you to come up with a hypothesis for an analytics question and then produce data to support or validate your hypothesis. In other words, it’s not just about your technical skills; you’re also being tested on creative problem-solving and your ability to communicate with stakeholders.

This article provides an overview of how to answer data analytics case study interview questions. You can find an in-depth course in the data analytics learning path .

How to Solve Data Analytics Case Questions

Check out our video below on How to solve a Data Analytics case study problem:

Data Analytics Case Study Vide Guide

With data analyst case questions, you will need to answer two key questions:

  • What metrics should I propose?
  • How do I write a SQL query to get the metrics I need?

In short, to ace a data analytics case interview, you not only need to brush up on case questions, but you also should be adept at writing all types of SQL queries and have strong data sense.

These questions are especially challenging to answer if you don’t have a framework or know how to answer them. To help you prepare, we created this step-by-step guide to answering data analytics case questions.

We show you how to use a framework to answer case questions, provide example analytics questions, and help you understand the difference between analytics case studies and product metrics case studies .

Data Analytics Cases vs Product Metrics Questions

Product case questions sometimes get lumped in with data analytics cases.

Ultimately, the type of case question you are asked will depend on the role. For example, product analysts will likely face more product-oriented questions.

Product metrics cases tend to focus on a hypothetical situation. You might be asked to:

Investigate Metrics - One of the most common types will ask you to investigate a metric, usually one that’s going up or down. For example, “Why are Facebook friend requests falling by 10 percent?”

Measure Product/Feature Success - A lot of analytics cases revolve around the measurement of product success and feature changes. For example, “We want to add X feature to product Y. What metrics would you track to make sure that’s a good idea?”

With product data cases, the key difference is that you may or may not be required to write the SQL query to find the metric.

Instead, these interviews are more theoretical and are designed to assess your product sense and ability to think about analytics problems from a product perspective. Product metrics questions may also show up in the data analyst interview , but likely only for product data analyst roles.

case study on technical analysis

TRY CHECKING: Marketing Analytics Case Study Guide

Data Analytics Case Study Question: Sample Solution

Data Analytics Case Study Sample Solution

Let’s start with an example data analytics case question :

You’re given a table that represents search results from searches on Facebook. The query column is the search term, the position column represents each position the search result came in, and the rating column represents the human rating from 1 to 5, where 5 is high relevance, and 1 is low relevance.

Each row in the search_events table represents a single search, with the has_clicked column representing if a user clicked on a result or not. We have a hypothesis that the CTR is dependent on the search result rating.

Write a query to return data to support or disprove this hypothesis.

search_results table:

Column Type
VARCHAR
INTEGER
INTEGER
INTEGER

search_events table

Column Type
INTEGER
VARCHAR
BOOLEAN

Step 1: With Data Analytics Case Studies, Start by Making Assumptions

Hint: Start by making assumptions and thinking out loud. With this question, focus on coming up with a metric to support the hypothesis. If the question is unclear or if you think you need more information, be sure to ask.

Answer. The hypothesis is that CTR is dependent on search result rating. Therefore, we want to focus on the CTR metric, and we can assume:

  • If CTR is high when search result ratings are high, and CTR is low when the search result ratings are low, then the hypothesis is correct.
  • If CTR is low when the search ratings are high, or there is no proven correlation between the two, then our hypothesis is not proven.

Step 2: Provide a Solution for the Case Question

Hint: Walk the interviewer through your reasoning. Talking about the decisions you make and why you’re making them shows off your problem-solving approach.

Answer. One way we can investigate the hypothesis is to look at the results split into different search rating buckets. For example, if we measure the CTR for results rated at 1, then those rated at 2, and so on, we can identify if an increase in rating is correlated with an increase in CTR.

First, I’d write a query to get the number of results for each query in each bucket. We want to look at the distribution of results that are less than a rating threshold, which will help us see the relationship between search rating and CTR.

This CTE aggregates the number of results that are less than a certain rating threshold. Later, we can use this to see the percentage that are in each bucket. If we re-join to the search_events table, we can calculate the CTR by then grouping by each bucket.

Step 3: Use Analysis to Backup Your Solution

Hint: Be prepared to justify your solution. Interviewers will follow up with questions about your reasoning, and ask why you make certain assumptions.

Answer. By using the CASE WHEN statement, I calculated each ratings bucket by checking to see if all the search results were less than 1, 2, or 3 by subtracting the total from the number within the bucket and seeing if it equates to 0.

I did that to get away from averages in our bucketing system. Outliers would make it more difficult to measure the effect of bad ratings. For example, if a query had a 1 rating and another had a 5 rating, that would equate to an average of 3. Whereas in my solution, a query with all of the results under 1, 2, or 3 lets us know that it actually has bad ratings.

Product Data Case Question: Sample Solution

product analytics on screen

In product metrics interviews, you’ll likely be asked about analytics, but the discussion will be more theoretical. You’ll propose a solution to a problem, and supply the metrics you’ll use to investigate or solve it. You may or may not be required to write a SQL query to get those metrics.

We’ll start with an example product metrics case study question :

Let’s say you work for a social media company that has just done a launch in a new city. Looking at weekly metrics, you see a slow decrease in the average number of comments per user from January to March in this city.

The company has been consistently growing new users in the city from January to March.

What are some reasons why the average number of comments per user would be decreasing and what metrics would you look into?

Step 1: Ask Clarifying Questions Specific to the Case

Hint: This question is very vague. It’s all hypothetical, so we don’t know very much about users, what the product is, and how people might be interacting. Be sure you ask questions upfront about the product.

Answer: Before I jump into an answer, I’d like to ask a few questions:

  • Who uses this social network? How do they interact with each other?
  • Has there been any performance issues that might be causing the problem?
  • What are the goals of this particular launch?
  • Has there been any changes to the comment features in recent weeks?

For the sake of this example, let’s say we learn that it’s a social network similar to Facebook with a young audience, and the goals of the launch are to grow the user base. Also, there have been no performance issues and the commenting feature hasn’t been changed since launch.

Step 2: Use the Case Question to Make Assumptions

Hint: Look for clues in the question. For example, this case gives you a metric, “average number of comments per user.” Consider if the clue might be helpful in your solution. But be careful, sometimes questions are designed to throw you off track.

Answer: From the question, we can hypothesize a little bit. For example, we know that user count is increasing linearly. That means two things:

  • The decreasing comments issue isn’t a result of a declining user base.
  • The cause isn’t loss of platform.

We can also model out the data to help us get a better picture of the average number of comments per user metric:

  • January: 10000 users, 30000 comments, 3 comments/user
  • February: 20000 users, 50000 comments, 2.5 comments/user
  • March: 30000 users, 60000 comments, 2 comments/user

One thing to note: Although this is an interesting metric, I’m not sure if it will help us solve this question. For one, average comments per user doesn’t account for churn. We might assume that during the three-month period users are churning off the platform. Let’s say the churn rate is 25% in January, 20% in February and 15% in March.

Step 3: Make a Hypothesis About the Data

Hint: Don’t worry too much about making a correct hypothesis. Instead, interviewers want to get a sense of your product initiation and that you’re on the right track. Also, be prepared to measure your hypothesis.

Answer. I would say that average comments per user isn’t a great metric to use, because it doesn’t reveal insights into what’s really causing this issue.

That’s because it doesn’t account for active users, which are the users who are actually commenting. A better metric to investigate would be retained users and monthly active users.

What I suspect is causing the issue is that active users are commenting frequently and are responsible for the increase in comments month-to-month. New users, on the other hand, aren’t as engaged and aren’t commenting as often.

Step 4: Provide Metrics and Data Analysis

Hint: Within your solution, include key metrics that you’d like to investigate that will help you measure success.

Answer: I’d say there are a few ways we could investigate the cause of this problem, but the one I’d be most interested in would be the engagement of monthly active users.

If the growth in comments is coming from active users, that would help us understand how we’re doing at retaining users. Plus, it will also show if new users are less engaged and commenting less frequently.

One way that we could dig into this would be to segment users by their onboarding date, which would help us to visualize engagement and see how engaged some of our longest-retained users are.

If engagement of new users is the issue, that will give us some options in terms of strategies for addressing the problem. For example, we could test new onboarding or commenting features designed to generate engagement.

Step 5: Propose a Solution for the Case Question

Hint: In the majority of cases, your initial assumptions might be incorrect, or the interviewer might throw you a curveball. Be prepared to make new hypotheses or discuss the pitfalls of your analysis.

Answer. If the cause wasn’t due to a lack of engagement among new users, then I’d want to investigate active users. One potential cause would be active users commenting less. In that case, we’d know that our earliest users were churning out, and that engagement among new users was potentially growing.

Again, I think we’d want to focus on user engagement since the onboarding date. That would help us understand if we were seeing higher levels of churn among active users, and we could start to identify some solutions there.

Tip: Use a Framework to Solve Data Analytics Case Questions

Analytics case questions can be challenging, but they’re much more challenging if you don’t use a framework. Without a framework, it’s easier to get lost in your answer, to get stuck, and really lose the confidence of your interviewer. Find helpful frameworks for data analytics questions in our data analytics learning path and our product metrics learning path .

Once you have the framework down, what’s the best way to practice? Mock interviews with our coaches are very effective, as you’ll get feedback and helpful tips as you answer. You can also learn a lot by practicing P2P mock interviews with other Interview Query students. No data analytics background? Check out how to become a data analyst without a degree .

Finally, if you’re looking for sample data analytics case questions and other types of interview questions, see our guide on the top data analyst interview questions .

case study on technical analysis

The Ultimate Guide to Qualitative Research - Part 1: The Basics

case study on technical analysis

  • Introduction and overview
  • What is qualitative research?
  • What is qualitative data?
  • Examples of qualitative data
  • Qualitative vs. quantitative research
  • Mixed methods
  • Qualitative research preparation
  • Theoretical perspective
  • Theoretical framework
  • Literature reviews

Research question

  • Conceptual framework
  • Conceptual vs. theoretical framework

Data collection

  • Qualitative research methods
  • Focus groups
  • Observational research

What is a case study?

Applications for case study research, what is a good case study, process of case study design, benefits and limitations of case studies.

  • Ethnographical research
  • Ethical considerations
  • Confidentiality and privacy
  • Power dynamics
  • Reflexivity

Case studies

Case studies are essential to qualitative research , offering a lens through which researchers can investigate complex phenomena within their real-life contexts. This chapter explores the concept, purpose, applications, examples, and types of case studies and provides guidance on how to conduct case study research effectively.

case study on technical analysis

Whereas quantitative methods look at phenomena at scale, case study research looks at a concept or phenomenon in considerable detail. While analyzing a single case can help understand one perspective regarding the object of research inquiry, analyzing multiple cases can help obtain a more holistic sense of the topic or issue. Let's provide a basic definition of a case study, then explore its characteristics and role in the qualitative research process.

Definition of a case study

A case study in qualitative research is a strategy of inquiry that involves an in-depth investigation of a phenomenon within its real-world context. It provides researchers with the opportunity to acquire an in-depth understanding of intricate details that might not be as apparent or accessible through other methods of research. The specific case or cases being studied can be a single person, group, or organization – demarcating what constitutes a relevant case worth studying depends on the researcher and their research question .

Among qualitative research methods , a case study relies on multiple sources of evidence, such as documents, artifacts, interviews , or observations , to present a complete and nuanced understanding of the phenomenon under investigation. The objective is to illuminate the readers' understanding of the phenomenon beyond its abstract statistical or theoretical explanations.

Characteristics of case studies

Case studies typically possess a number of distinct characteristics that set them apart from other research methods. These characteristics include a focus on holistic description and explanation, flexibility in the design and data collection methods, reliance on multiple sources of evidence, and emphasis on the context in which the phenomenon occurs.

Furthermore, case studies can often involve a longitudinal examination of the case, meaning they study the case over a period of time. These characteristics allow case studies to yield comprehensive, in-depth, and richly contextualized insights about the phenomenon of interest.

The role of case studies in research

Case studies hold a unique position in the broader landscape of research methods aimed at theory development. They are instrumental when the primary research interest is to gain an intensive, detailed understanding of a phenomenon in its real-life context.

In addition, case studies can serve different purposes within research - they can be used for exploratory, descriptive, or explanatory purposes, depending on the research question and objectives. This flexibility and depth make case studies a valuable tool in the toolkit of qualitative researchers.

Remember, a well-conducted case study can offer a rich, insightful contribution to both academic and practical knowledge through theory development or theory verification, thus enhancing our understanding of complex phenomena in their real-world contexts.

What is the purpose of a case study?

Case study research aims for a more comprehensive understanding of phenomena, requiring various research methods to gather information for qualitative analysis . Ultimately, a case study can allow the researcher to gain insight into a particular object of inquiry and develop a theoretical framework relevant to the research inquiry.

Why use case studies in qualitative research?

Using case studies as a research strategy depends mainly on the nature of the research question and the researcher's access to the data.

Conducting case study research provides a level of detail and contextual richness that other research methods might not offer. They are beneficial when there's a need to understand complex social phenomena within their natural contexts.

The explanatory, exploratory, and descriptive roles of case studies

Case studies can take on various roles depending on the research objectives. They can be exploratory when the research aims to discover new phenomena or define new research questions; they are descriptive when the objective is to depict a phenomenon within its context in a detailed manner; and they can be explanatory if the goal is to understand specific relationships within the studied context. Thus, the versatility of case studies allows researchers to approach their topic from different angles, offering multiple ways to uncover and interpret the data .

The impact of case studies on knowledge development

Case studies play a significant role in knowledge development across various disciplines. Analysis of cases provides an avenue for researchers to explore phenomena within their context based on the collected data.

case study on technical analysis

This can result in the production of rich, practical insights that can be instrumental in both theory-building and practice. Case studies allow researchers to delve into the intricacies and complexities of real-life situations, uncovering insights that might otherwise remain hidden.

Types of case studies

In qualitative research , a case study is not a one-size-fits-all approach. Depending on the nature of the research question and the specific objectives of the study, researchers might choose to use different types of case studies. These types differ in their focus, methodology, and the level of detail they provide about the phenomenon under investigation.

Understanding these types is crucial for selecting the most appropriate approach for your research project and effectively achieving your research goals. Let's briefly look at the main types of case studies.

Exploratory case studies

Exploratory case studies are typically conducted to develop a theory or framework around an understudied phenomenon. They can also serve as a precursor to a larger-scale research project. Exploratory case studies are useful when a researcher wants to identify the key issues or questions which can spur more extensive study or be used to develop propositions for further research. These case studies are characterized by flexibility, allowing researchers to explore various aspects of a phenomenon as they emerge, which can also form the foundation for subsequent studies.

Descriptive case studies

Descriptive case studies aim to provide a complete and accurate representation of a phenomenon or event within its context. These case studies are often based on an established theoretical framework, which guides how data is collected and analyzed. The researcher is concerned with describing the phenomenon in detail, as it occurs naturally, without trying to influence or manipulate it.

Explanatory case studies

Explanatory case studies are focused on explanation - they seek to clarify how or why certain phenomena occur. Often used in complex, real-life situations, they can be particularly valuable in clarifying causal relationships among concepts and understanding the interplay between different factors within a specific context.

case study on technical analysis

Intrinsic, instrumental, and collective case studies

These three categories of case studies focus on the nature and purpose of the study. An intrinsic case study is conducted when a researcher has an inherent interest in the case itself. Instrumental case studies are employed when the case is used to provide insight into a particular issue or phenomenon. A collective case study, on the other hand, involves studying multiple cases simultaneously to investigate some general phenomena.

Each type of case study serves a different purpose and has its own strengths and challenges. The selection of the type should be guided by the research question and objectives, as well as the context and constraints of the research.

The flexibility, depth, and contextual richness offered by case studies make this approach an excellent research method for various fields of study. They enable researchers to investigate real-world phenomena within their specific contexts, capturing nuances that other research methods might miss. Across numerous fields, case studies provide valuable insights into complex issues.

Critical information systems research

Case studies provide a detailed understanding of the role and impact of information systems in different contexts. They offer a platform to explore how information systems are designed, implemented, and used and how they interact with various social, economic, and political factors. Case studies in this field often focus on examining the intricate relationship between technology, organizational processes, and user behavior, helping to uncover insights that can inform better system design and implementation.

Health research

Health research is another field where case studies are highly valuable. They offer a way to explore patient experiences, healthcare delivery processes, and the impact of various interventions in a real-world context.

case study on technical analysis

Case studies can provide a deep understanding of a patient's journey, giving insights into the intricacies of disease progression, treatment effects, and the psychosocial aspects of health and illness.

Asthma research studies

Specifically within medical research, studies on asthma often employ case studies to explore the individual and environmental factors that influence asthma development, management, and outcomes. A case study can provide rich, detailed data about individual patients' experiences, from the triggers and symptoms they experience to the effectiveness of various management strategies. This can be crucial for developing patient-centered asthma care approaches.

Other fields

Apart from the fields mentioned, case studies are also extensively used in business and management research, education research, and political sciences, among many others. They provide an opportunity to delve into the intricacies of real-world situations, allowing for a comprehensive understanding of various phenomena.

Case studies, with their depth and contextual focus, offer unique insights across these varied fields. They allow researchers to illuminate the complexities of real-life situations, contributing to both theory and practice.

case study on technical analysis

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Understanding the key elements of case study design is crucial for conducting rigorous and impactful case study research. A well-structured design guides the researcher through the process, ensuring that the study is methodologically sound and its findings are reliable and valid. The main elements of case study design include the research question , propositions, units of analysis, and the logic linking the data to the propositions.

The research question is the foundation of any research study. A good research question guides the direction of the study and informs the selection of the case, the methods of collecting data, and the analysis techniques. A well-formulated research question in case study research is typically clear, focused, and complex enough to merit further detailed examination of the relevant case(s).

Propositions

Propositions, though not necessary in every case study, provide a direction by stating what we might expect to find in the data collected. They guide how data is collected and analyzed by helping researchers focus on specific aspects of the case. They are particularly important in explanatory case studies, which seek to understand the relationships among concepts within the studied phenomenon.

Units of analysis

The unit of analysis refers to the case, or the main entity or entities that are being analyzed in the study. In case study research, the unit of analysis can be an individual, a group, an organization, a decision, an event, or even a time period. It's crucial to clearly define the unit of analysis, as it shapes the qualitative data analysis process by allowing the researcher to analyze a particular case and synthesize analysis across multiple case studies to draw conclusions.

Argumentation

This refers to the inferential model that allows researchers to draw conclusions from the data. The researcher needs to ensure that there is a clear link between the data, the propositions (if any), and the conclusions drawn. This argumentation is what enables the researcher to make valid and credible inferences about the phenomenon under study.

Understanding and carefully considering these elements in the design phase of a case study can significantly enhance the quality of the research. It can help ensure that the study is methodologically sound and its findings contribute meaningful insights about the case.

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Conducting a case study involves several steps, from defining the research question and selecting the case to collecting and analyzing data . This section outlines these key stages, providing a practical guide on how to conduct case study research.

Defining the research question

The first step in case study research is defining a clear, focused research question. This question should guide the entire research process, from case selection to analysis. It's crucial to ensure that the research question is suitable for a case study approach. Typically, such questions are exploratory or descriptive in nature and focus on understanding a phenomenon within its real-life context.

Selecting and defining the case

The selection of the case should be based on the research question and the objectives of the study. It involves choosing a unique example or a set of examples that provide rich, in-depth data about the phenomenon under investigation. After selecting the case, it's crucial to define it clearly, setting the boundaries of the case, including the time period and the specific context.

Previous research can help guide the case study design. When considering a case study, an example of a case could be taken from previous case study research and used to define cases in a new research inquiry. Considering recently published examples can help understand how to select and define cases effectively.

Developing a detailed case study protocol

A case study protocol outlines the procedures and general rules to be followed during the case study. This includes the data collection methods to be used, the sources of data, and the procedures for analysis. Having a detailed case study protocol ensures consistency and reliability in the study.

The protocol should also consider how to work with the people involved in the research context to grant the research team access to collecting data. As mentioned in previous sections of this guide, establishing rapport is an essential component of qualitative research as it shapes the overall potential for collecting and analyzing data.

Collecting data

Gathering data in case study research often involves multiple sources of evidence, including documents, archival records, interviews, observations, and physical artifacts. This allows for a comprehensive understanding of the case. The process for gathering data should be systematic and carefully documented to ensure the reliability and validity of the study.

Analyzing and interpreting data

The next step is analyzing the data. This involves organizing the data , categorizing it into themes or patterns , and interpreting these patterns to answer the research question. The analysis might also involve comparing the findings with prior research or theoretical propositions.

Writing the case study report

The final step is writing the case study report . This should provide a detailed description of the case, the data, the analysis process, and the findings. The report should be clear, organized, and carefully written to ensure that the reader can understand the case and the conclusions drawn from it.

Each of these steps is crucial in ensuring that the case study research is rigorous, reliable, and provides valuable insights about the case.

The type, depth, and quality of data in your study can significantly influence the validity and utility of the study. In case study research, data is usually collected from multiple sources to provide a comprehensive and nuanced understanding of the case. This section will outline the various methods of collecting data used in case study research and discuss considerations for ensuring the quality of the data.

Interviews are a common method of gathering data in case study research. They can provide rich, in-depth data about the perspectives, experiences, and interpretations of the individuals involved in the case. Interviews can be structured , semi-structured , or unstructured , depending on the research question and the degree of flexibility needed.

Observations

Observations involve the researcher observing the case in its natural setting, providing first-hand information about the case and its context. Observations can provide data that might not be revealed in interviews or documents, such as non-verbal cues or contextual information.

Documents and artifacts

Documents and archival records provide a valuable source of data in case study research. They can include reports, letters, memos, meeting minutes, email correspondence, and various public and private documents related to the case.

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These records can provide historical context, corroborate evidence from other sources, and offer insights into the case that might not be apparent from interviews or observations.

Physical artifacts refer to any physical evidence related to the case, such as tools, products, or physical environments. These artifacts can provide tangible insights into the case, complementing the data gathered from other sources.

Ensuring the quality of data collection

Determining the quality of data in case study research requires careful planning and execution. It's crucial to ensure that the data is reliable, accurate, and relevant to the research question. This involves selecting appropriate methods of collecting data, properly training interviewers or observers, and systematically recording and storing the data. It also includes considering ethical issues related to collecting and handling data, such as obtaining informed consent and ensuring the privacy and confidentiality of the participants.

Data analysis

Analyzing case study research involves making sense of the rich, detailed data to answer the research question. This process can be challenging due to the volume and complexity of case study data. However, a systematic and rigorous approach to analysis can ensure that the findings are credible and meaningful. This section outlines the main steps and considerations in analyzing data in case study research.

Organizing the data

The first step in the analysis is organizing the data. This involves sorting the data into manageable sections, often according to the data source or the theme. This step can also involve transcribing interviews, digitizing physical artifacts, or organizing observational data.

Categorizing and coding the data

Once the data is organized, the next step is to categorize or code the data. This involves identifying common themes, patterns, or concepts in the data and assigning codes to relevant data segments. Coding can be done manually or with the help of software tools, and in either case, qualitative analysis software can greatly facilitate the entire coding process. Coding helps to reduce the data to a set of themes or categories that can be more easily analyzed.

Identifying patterns and themes

After coding the data, the researcher looks for patterns or themes in the coded data. This involves comparing and contrasting the codes and looking for relationships or patterns among them. The identified patterns and themes should help answer the research question.

Interpreting the data

Once patterns and themes have been identified, the next step is to interpret these findings. This involves explaining what the patterns or themes mean in the context of the research question and the case. This interpretation should be grounded in the data, but it can also involve drawing on theoretical concepts or prior research.

Verification of the data

The last step in the analysis is verification. This involves checking the accuracy and consistency of the analysis process and confirming that the findings are supported by the data. This can involve re-checking the original data, checking the consistency of codes, or seeking feedback from research participants or peers.

Like any research method , case study research has its strengths and limitations. Researchers must be aware of these, as they can influence the design, conduct, and interpretation of the study.

Understanding the strengths and limitations of case study research can also guide researchers in deciding whether this approach is suitable for their research question . This section outlines some of the key strengths and limitations of case study research.

Benefits include the following:

  • Rich, detailed data: One of the main strengths of case study research is that it can generate rich, detailed data about the case. This can provide a deep understanding of the case and its context, which can be valuable in exploring complex phenomena.
  • Flexibility: Case study research is flexible in terms of design , data collection , and analysis . A sufficient degree of flexibility allows the researcher to adapt the study according to the case and the emerging findings.
  • Real-world context: Case study research involves studying the case in its real-world context, which can provide valuable insights into the interplay between the case and its context.
  • Multiple sources of evidence: Case study research often involves collecting data from multiple sources , which can enhance the robustness and validity of the findings.

On the other hand, researchers should consider the following limitations:

  • Generalizability: A common criticism of case study research is that its findings might not be generalizable to other cases due to the specificity and uniqueness of each case.
  • Time and resource intensive: Case study research can be time and resource intensive due to the depth of the investigation and the amount of collected data.
  • Complexity of analysis: The rich, detailed data generated in case study research can make analyzing the data challenging.
  • Subjectivity: Given the nature of case study research, there may be a higher degree of subjectivity in interpreting the data , so researchers need to reflect on this and transparently convey to audiences how the research was conducted.

Being aware of these strengths and limitations can help researchers design and conduct case study research effectively and interpret and report the findings appropriately.

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  1. Ep 127: Technical Analysis Case Studies & ABCD Patterns

    Today we're going to take a look at technical analysis case study as far as Tesla goes. And we'll do a little bit of practice. This is great if you're getting started with technical analysis or you want to learn a little more about technical analysis. You want to break apart a chart in great detail.

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  3. Technical Analysis

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  10. Writing a Case Study Analysis

    Identify the key problems and issues in the case study. Formulate and include a thesis statement, summarizing the outcome of your analysis in 1-2 sentences. Background. Set the scene: background information, relevant facts, and the most important issues. Demonstrate that you have researched the problems in this case study. Evaluation of the Case

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    Case studies are good for describing, comparing, evaluating and understanding different aspects of a research problem. Table of contents. When to do a case study. Step 1: Select a case. Step 2: Build a theoretical framework. Step 3: Collect your data. Step 4: Describe and analyze the case.

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    Case study protocol is a formal document capturing the entire set of procedures involved in the collection of empirical material . It extends direction to researchers for gathering evidences, empirical material analysis, and case study reporting . This section includes a step-by-step guide that is used for the execution of the actual study.

  13. Technical Analysis for Equity Markets I Finance Course I CFI

    Applied Technical Analysis for Equity Markets builds upon the concepts covered in CMSA's Trading Using Technical Analysis course and applies the technical analysis tools to analyze three real-world case studies. In our first case study, we will evaluate whether Barrick Gold is bullish or bearish with a collection of these indicators mentioned.

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  15. What is a technical case study?

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    A single-case study is an in-depth analysis of a single case. This type of case study is useful when the researcher wants to understand a specific phenomenon in detail. ... The study included interviews, analysis of data, and review of documents to identify the technical, organizational, and cultural factors that contributed to the disaster ...

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    Case study examples. Case studies are proven marketing strategies in a wide variety of B2B industries. Here are just a few examples of a case study: Amazon Web Services, Inc. provides companies with cloud computing platforms and APIs on a metered, pay-as-you-go basis. This case study example illustrates the benefits Thomson Reuters experienced ...

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  20. Toward Developing a Framework for Conducting Case Study Research

    The guide for the case study report is often omitted from case study plans because investigators view the reporting phase as being far in the future. Yin (1994) proposed that the report is planned at the start. Case studies do not have a widely accepted reporting format - hence the experience of the investigator is a key factor (Tellis, 1997).

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    Case studies play a significant role in knowledge development across various disciplines. Analysis of cases provides an avenue for researchers to explore phenomena within their context based on the collected data. Analysis of qualitative data from case study research can contribute to knowledge development.

  22. PDF How to Analyze a Case Study

    Writing Center 1/28/13 How to Analyze a Case Study Adapted from Ellet, W. (2007). The case study handbook.Boston, MA: Harvard Business School. A business case simulates a real situation and has three characteristics: 1. a significant issue, 2. enough information to reach a reasonable conclusion, 3. no stated conclusion.

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