Buying may increase when price moves towards the support level and selling may
increase when the price move towards the resistance level. Sometimes over a period
newer levels may also possible.
The difference between the closing price of a share of a previous day and the opening
price of a share of a current day is called gap. The greater the gap with higher
opening price, the higher the willingness to pay. A lower opening price or a minus
opening price shows higher willingness to sell.
Whatever may be outcomes of the theoretical calculations the fate of a share
depends on the responsiveness as a unique indicator. This is because most
of the theoretical calculations have their own limitations. The major
limitation is that outcomes of the theoretical calculations may be true in
short run but not in the long run. Even in the short run, actual may vary
from the expectations at higher proportions. The assumption of market
efficiency based on perfectness by the Technical Analysis is highly
unrealistic.Modern Portfolio Theory (MPT)
MPT is based on the behavior of the investor. The investor may make decision based
on the expected return and the riskiness of returns. The higher the level of
fluctuations, the higher is the risk.Therefore an investor may not prefer a share having higher level of fluctuations price.
He may prefer a share even with a lower return, if the risk is low.To reduce the risk, an investor may invest in different securities. Loss, if any, in one
security will be offset by gain in another.Portfolio means holding number of securities at a time by an investor. MPT is based
upon its analysis on risk and return. When two varieties of securities have got equal
risk, an investor may decide in favor of a security which is expected to yield higher
return. If such two varieties of securities are expected to yield equal return, an
investor may prefer a security having lesser risk.Now, to reduce risk, one may invest in more than one security, but one must also
limit the diversification. This is because; again risk may be higher when the
diversification is very high.One may also think of holding all variety of securities. Such holdings will be called
as market portfolio. The market portfolio is associated with the market risk. This
market risk cannot be eliminated through diversification. Overall changes in the
market price will have its own effect on a given security. The effect may change the
degree of riskiness of a security. This is nothing but sensitivity of one security with
reference to the changes in riskiness of other securities in the market.