NUSInvest Workshop Series

Session One

Introduction to FA/TA

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FA vs TA

FUNDAMENTAL ANALYSIS

Fundamental analysis of a business involves analyzing 

its financial statements and health, its management and 

competitive advantages, and its competitors and 

markets.

EconomicAnalysis

Industry Analysis

CompanyAnalysis

TECHNICAL ANALYSIS

The study of market action, primarily through the use of 

charts, for the purpose of forecasting future price 

trends.

• All information is reflected in price (responses & sentiments)

• History repeats itself

• Technical Analysis can be applied to different trading 

mediums/markets/assets

FA vs TAFUNDAMENTAL ANALYSIS

• Focuses on the economic forces of Demand & Supply that causes prices to move

• Finding the intrinsic value of the market/asset

• Characteristics of a company is employed in the analysis

• Effects of economic factors on a stock such as earning reports, cash flow, etc are concerned

• Analysis using past data of Demand & Supply

• Study of historical graphs is stressed

• Identify a trend at a relatively early stage & ride on that trend until the weight of the evidence shows or proves that the trend has reversed

• Deals in probabilities, never certainties

TECHNICAL ANALYSIS

Efficient Market Hypothesis

Criticisms of FA and TA 3 Versions: Weak / Semi-strong / Strong

Impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information

EMH: stocks always trade at their fair value (impossible to purchase undervalued stocks or sell at inflated prices)

Intro to TA

Charts

• Candlesticks stresses relationship between open and close prices

Candle Anatomy• Body: Distance between open and closing

• Tip of upper wick/shadow: Highest price of that 

period

• Bottom of lower wick/shadow/hair: Lowest 

price of that period

• Range (length) of candle stick indicates volatility

• Upward candlestick usually white or green or 

blue

• Downward candlestick usually black or red

BullishCandle

BearishCandle

Gaps• Gap: Current open is not the same as 

prior closing price

• No price and no volume transacted hands between the gap (area on price chart where there is no trades)

• Effect of news after stock market closed for the day (e.g. earnings report)

• Psychology: Can act as resistance/ support (news that sparked the gap is still in play)

Daily Chart – Wal-Mart (WMT)

1 Price-Bar Pattern

Hammer

• Found in downtrend• Short body at the top of price range• Little to no upper shadow• Lower shadow must be at least 

twice the length of real-body• Signals: Reversal pattern when 

found in a downtrend• Short-term outlook indication• Real body can be black or white

(white: stronger signal)

Hammer

• Low reliability, requires confirmation– Bullish gap for next session– Subsequent session shows white real body above that of 

the hammer’s real body

• Significance/ Strength:– Length of Lower Shadow– Colour

Long lower wick indicates initial selling prices

Buyers drive prices back upto close near the highs

BACKGROUND1-BAR

PATTERN2-BARS PATTERN

3-BARS PATTERN

PRICE TRADING STRATEGIES

Hanging Man

• Found in uptrend• Short body at the top of price range• Little to no upper shadow• Lower shadow must be at least 

twice the length of real-body• Warning of a potential downward• Short-term outlook indication

• Also requires confirmation

Hanging Man1. Uptrend2. Gap Up3. Lower Shadow at least twice as big as Real Body4. Real Body Bullish or Bearish; better if Bearish5. Confirmation Candle

Greater gap: Higher likelihood of reversal

Shooting Star• Found in uptrend• Short body at the bottom of price 

range• Little to no lower shadow• Upper shadow must be at least 

twice the length of real-body• Signals: Reversal pattern• Short-term outlook indication• Real body can be black or white

(black: stronger signal)

Shooting Star• Low reliability, requires confirmation

– Bearish gap for next session– Subsequent session shows black real body below that of 

the shooting star’s real body

• Significance/ Strength:– Length of Upper Shadow– Colour

Long upper wick indicatesinitial buying prices

Bears were able to rejectbulls completely (or push prices evenlower by closing below open)

Open

Shooting Star

1. Uptrend2. Upper shadow at least twice as big as real body3. Real body bullish or bearish (bearish: stronger indication)

Inverted Hammer

• Found in downtrend• Short body at the bottom of price 

range• Little to no lower shadow• Upper shadow must be at least 

twice the length of real-body• Signals: Reversal pattern• Short-term outlook indication• Real body can be black or white

(white: stronger signal)

Inverted Hammer

Spinning Top & Doji• Short body in the middle of two long 

wicks• Market closed relatively unchanged• Indicates indecision (‘standoff’ after 

significant price movement)• Trend losing momentum; possible 

turning point

• Doji/ Long-legged Doji: stronger signal

• Open and close are the same• Insignificant in sideway markets

Buyers in control

Sellers in control

Dragonfly Doji Gravestone Doji Four Price Doji

• Long lower, no upper

• Long upper, no lower

• Same upper, lower, open & close• Very rare• Low volume situations

More Doji Patterns

2 Price-Bars Pattern

Bullish Engulfing Candle

Gap down

When found in a downtrend:

• Bullish candle opens lower than previous candle’s close, closes higher than previous candle’s open

• Potential sign that trend is reversing

• Indicates control has shifted from sellers to buyers

Bearish Engulfing Candle

When found in a uptrend:

• Gap up: Bullish sign• But: Bulls only push prices up 

slightly before bears take over and push prices much lower

• Potential sign that trend is reversing

• Indicates control has shifted from buyers to sellers

Gap Up

Bullish Engulfing

1. Downtrend2. Bearish Candle3. Gap Down4. Bullish Candle5. Close above previous Bearish Candle

3 Price-Bars Pattern

Morning Star• Consists of 3 candlesticks

• Bearish Gap:  Bears are in control during opening 

• Day 2: Prices are not pushed much lower (small / neutral candlestick)– Bullish: stronger sign

• Day 3: Bullish gap up• Prices pushed further upward, 

sometimes eliminating all Day 1 losses

Evening Star• Consists of 3 candlesticks:

- Bullish, Small/ Neutral, Bearish

• Presence of bullish gap, bearish gap

• Day 2: Prices are not pushed much higher– Bearish: stronger sign

• Day 3: Large bearish candlestick• Prices pushed further downward, 

sometimes eliminating all of Day 1’s gains

Evening Star

1. Uptrend2. Bullish Candle3. Gap Up4. Small Bullish/ Bearish Candle5. Gap Down6. Bullish Candle

Morning Star Pattern

Many other chart and price patterns, indicators,

theories…

CHART CONSTRUCTION

SUPPORT & RESISTANCE

Reversal Patterns

CHART CONSTRUCTION

SUPPORT & RESISTANCE

Others

• Fibonacci• Continuation Patterns• Moving averages• Oscillators and momentum indicators• Pivot Points• Trading Divergences• Elliott Wave Theory• …

Resources

• Babypips.com• Forexfactory.com

Intro to FA

Basics of FA Buy and Hold

Latch onto a good business and allow investor’s assets to 

grow with the business

Value Investing

Seek under-valued companies

Dividend Investing

Seek blue chip stocks that generate dividends consistently

Top-Down Approach

Starts with analysis of global economics• E.g. GDP, Interest Rates

 Narrows down to regional/industry analysis • Total sales, trends, Growing/Sunset

Basics of FA

Basics of FA

Bottom-Up Approach

Starts with specific businesses, regardless of industry/region

Basics of FA

Qualitative & Quantitative

Intrinsic Value (true value, not necessarily market price) Find opportunities to buy at a discount Wait for investment  to pay off when market catches up

Industry Factors• Industry life cycle

– Emerging, Growth, Maturity, Decline

• Key Trends– E.g. Airlines: Fuel Cost; Jewellery: Gold Price; REITs: Interest rates 

Company Factors• Business Model

• Competitive Advantage

• Management (ownership - founder? Insider shareholdings?)

• Market Share– Competitors’ Performance

Financial Ratios

Liquidity Solvency Efficiency

Profitability Market value

• 5 types of financial ratios

Price Earning Ratio (P/E)

• Price of Share divided by Earnings per share (EPS)

• Values the share based on earnings

• The lower the PE compared to similar companies the 

better the value

• However, more research the reason behind low 

valuations

EBIT

• Earnings Before Interest and Taxes

• Adds Interest and Tax Expense to NI 

• Gives a clearer picture of company’s ability to 

generate profits

• By taking away distortions from financing cost 

and tax structure

EBITDA

• Earnings Before Interest Tax Depreciation 

Amortization

• A PROXY of Operating cash Flow

• Important in determining firm’s ability to 

generate cash

Price to Book Ratio (P/B)

• Compares stock’s market value to its book value

• A low P/B ratio could mean that the stock is 

undervalued

• Also gives some idea of whether you’re paying 

too much for what would be left if the company 

goes bankrupt

Earnings per Share (EPS)

• The only financial indicator companies are mandated 

to provide in their annual report

• One of the most important indicators of profitability

• Shows the ability of each share in generating 

accounting profits

• Trend is important in analyzing EPS

Debt to Equity

• Most common leverage ratio

• Shows us the capital structure of the firm

• Can indicate financing expenditure, solvency 

of the firm

Profit margin

• Net Profits/Net Sales

• Shows efficiency of revenue in generating 

profits

• Important in evaluating efficiency within the 

industry

Return on Equity

• Net Income / Total Equity

• Shows how much of income is attributable 

to equity holders

• Also shows how efficient company is 

generating profits with given capital

Other Ratios

• Current Ratio

• only measures short term liquidity status

• Current Assets / Current Liabilities

• Return on Assets (ROA)

• More…

Resources

• Bloomberg terminal• Bloomberg.com• Investopedia.com• SGX.com• Equity Research Reports

CHART CONSTRUCTION

SUPPORT & RESISTANCE

Thank You!