There are two type of analysis:

**Technical Analysis**=> Study of past price behaviour and the repetition of the market participants**Fundamental Analysis**=> Is the study of economic factors and involves evaluating the potential effect which they may have on the markets

There are four types of factors:

- Economic factors
- Political factors
- Financial factors
- Crisis factors

Core elements of technical analysis:

- Price
- Time
- Volume
- Momentum

**Bull/Bear markets** => is a market that is at its peak at the top or at its minimum at the bottom and it will take a considerable amount of time for it to go the other way.

Charles Dow => Provided real rule based technical analylsis techniques => Dow Jones

**Dow Theory**:

All information – past, present, and future, is discounted into the markets and reflected in the prices of stocks and indices.

Dow theory is mainly focused on price

**Trend Analysis**:

There are three main types of trends:

- Short term
- Intermediate term
- Long term

Trough = Low

Peak = High

A rally is a peak and a trough consecutively

There are three ways to display information on a chart:

- Line – only use closing prices (i.e looking at prices over years)
- Bar – Display 4 pieces of info (Open, High, low, Close)
- Candle – Also display 4 pieces of information (open, high, low, close) just like a bar chart but they include a colour coding to provide an enhanced visual info display. They visually indicate if the closing price was higher or lower than the opening price

**Candle Charts**:

Doji – Opening and closing positions are the same

Good website: http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:introduction_to_candlesticks

All technical analysis assumes the three following things:

- Mark action discounts everything – If demand exceeds supply, prices should rise. If supply exceeds demand, prices should fall
- Prices move in trends
- History repeats itself

Prices always move in trend. This can be:

- Upwards
- Sideways
- Downwards

**Computational investing**:

Common metrics:

- Annual Return
- Risk: standard deviation of return
- Risk: Draw Down
- Reward\Risk: Sharpe ratio
- Reward\Risk: Sortino ratio
- Jensen’s Alpha

Course text book: http://faculty.washington.edu/ezivot/econ424/econ424.htm

Time value of money:

- Future value:
- £x invested for n years at simple interest rate R per year

- Compound of interest is calculated at the end of the year

Where FVn is the future value after n years. R is the interest rate

The Rule of seven:

If I invest x, how long will it take for my money to double?

Use the Investment Horizon equation to solve this:

0.7 / R = time taken to double your investment (where R is interest rate)

What happens if your are compounding M times a year – What then is your future value formula?

R / M = Periodic interest rate

If you are continually compounding then what is your future value formula?

(so in other words what happens as M tends to infinity?):

So in other words FVn = Ve(R-N) where e1 = 2.71828