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NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Stocks (NISM XXI-A)

Technical Analysis and Investment Styles for NISM XXI-A

Updated 11 October 2026 · Fact-checked

Technical analysis studies price and volume charts to judge future price direction, using trends, support and resistance, and indicators such as moving averages and RSI. Fundamental analysis studies business value instead. To answer exam questions, identify whether the data is price-based or business-based, then match it to the right method or style.

Understand Technical Analysis and Investment Styles

Technical analysis is the study of past market prices and trading volumes, usually on charts, to guess where the price may go next. It assumes that price already reflects all known information, that prices move in trends, and that price patterns tend to repeat because investor behaviour repeats.

Fundamental analysis is different. It looks at the business: earnings, growth, debt, management, industry and economy. It tries to find the intrinsic value of a share and compares it with the market price. Technical analysis asks "what is the price doing?" Fundamental analysis asks "what is the business worth?"

A trend is the general direction of price: up (higher highs and higher lows), down (lower highs and lower lows) or sideways. Support is a price zone where falling prices tend to stop because buyers step in. Resistance is a zone where rising prices tend to stall because sellers step in. If price breaks through a level, it is often called a breakout or breakdown. Many traders then treat a broken support as a new resistance, and the reverse.

Indicators are calculations on price and volume. A moving average smooths prices over a set number of periods, so you see the trend more clearly. It lags price, because it is built from past data. The Relative Strength Index (RSI) is a momentum oscillator that moves between 0 and 100. By the usual convention, a reading above 70 suggests overbought and below 30 suggests oversold. These are signals, not guarantees.

Investment styles describe how a manager picks stocks. Growth investing buys companies expected to grow earnings faster than average, often at higher valuations. Value investing buys stocks priced below estimated intrinsic value, often with low price-to-earnings or price-to-book. Momentum investing buys recent winners and sells recent losers, expecting the trend to continue. Growth and value are rooted in fundamentals. Momentum is closer to the technical way of thinking, as it relies on price behaviour.

Key formulas to remember

Simple moving average (SMA)
SMA = (sum of closing prices over n periods) ÷ n
Lagging indicator. A shorter n reacts faster; a longer n is smoother.
Uptrend and downtrend
Uptrend: higher highs and higher lows. Downtrend: lower highs and lower lows
Sideways means price stays in a range between support and resistance.
Support and resistance
Support = floor where buying emerges. Resistance = ceiling where selling emerges
Broken support often becomes resistance, and broken resistance often becomes support.
RSI convention
RSI above 70: overbought. RSI below 30: oversold. Scale 0 to 100
Common convention, not a rule that price must reverse.
Style summary
Value: price below intrinsic value. Growth: above-average earnings growth. Momentum: follows recent price strength
Link each style to its main test.

How to solve Technical Analysis and Investment Styles questions

Use this method for any question on technical analysis or investment styles.

  1. 1Read the question stem and note the key clue: price, volume, chart, indicator, valuation, earnings growth or recent returns.
  2. 2Decide the approach: chart and price data points to technical analysis; business and valuation data points to fundamental analysis.
  3. 3If a style is asked, match the clue: cheap versus intrinsic value is value, fast earnings growth is growth, recent price strength is momentum.
  4. 4For indicator questions, recall what it measures: moving average shows trend, RSI shows overbought or oversold.
  5. 5For support and resistance, ask whether price is falling to a floor (support) or rising to a ceiling (resistance).
  6. 6For calculations, add the prices and divide by the number of periods.
  7. 7Remove options with absolute words such as always, guarantees or never, then pick the best fit.

Quickest way: Clue-word matching

When to use it: Use for definition and statement-type MCQs when time is short.

  1. Price, chart, volume, pattern: technical.
  2. Earnings, balance sheet, intrinsic value: fundamental.
  3. Low P/E or P/B, undervalued: value.
  4. High earnings growth, premium valuation: growth.
  5. Recent winners, trend following: momentum.
  6. Moving average means trend and lag; RSI means momentum and 70/30.

Common mistakes in Technical Analysis and Investment Styles

  • Treating support as a ceiling and resistance as a floor.

    The two words sound similar and are easy to swap under pressure.

    Fix: Support holds price up from below, like a floor. Resistance stops price from rising, like a ceiling.

  • Saying RSI above 70 guarantees a fall.

    Students memorise the levels as rules.

    Fix: They are conventions that suggest overbought conditions. Price can stay high for long.

  • Calling a moving average a leading indicator.

    It is plotted on the chart next to current price, so it looks predictive.

    Fix: It is built from past prices, so it lags. It confirms trends rather than predicting them.

  • Confusing value and growth styles.

    Both use fundamentals and both seek good returns.

    Fix: Value looks for a price below intrinsic worth. Growth looks for above-average earnings growth even at a high valuation.

  • Placing momentum investing under fundamental analysis.

    It is listed beside growth and value as a style.

    Fix: Momentum depends on recent price performance, so it uses price-based logic like technical analysis.

  • Slipping on moving average arithmetic.

    Students divide by the wrong number of periods or use the wrong prices.

    Fix: Use only the latest n closing prices and divide by n.

Worked examples

Example 1

The closing prices of a share over the last 5 days are ₹100, ₹104, ₹102, ₹106 and ₹108. What is the 5-day simple moving average?

Show the solution
  1. Add the five closing prices: 100 + 104 + 102 + 106 + 108 = 520.
  2. Divide by the number of periods: 520 ÷ 5 = 104.
  3. The 5-day SMA is ₹104.

Answer: ₹104

Example 2

A portfolio manager buys stocks that have risen strongly over the past six months and sells those that have fallen, expecting the trends to continue. Which investment style is this?

Show the solution
  1. The clue is the use of recent price performance, not valuation or earnings growth.
  2. Buying winners and selling losers to ride trends is the definition of momentum investing.
  3. Value would need a price below intrinsic value, and growth would need strong expected earnings growth, so both are ruled out.

Answer: Momentum investing

Exam tips

  • Expect direct definition questions: support, resistance, trend, moving average, RSI.
  • Be ready to separate technical from fundamental analysis by the data each uses.
  • Watch for absolute words like always or guarantees; they usually mark wrong options.
  • In PMS questions, tie styles to a manager's investment approach: value, growth or momentum.
  • Practise the simple moving average calculation; it is quick marks.

Practice questions from Investing in Stocks (NISM XXI-A)

Technical Analysis and Investment Styles in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Technical Analysis and Investment Styles: frequently asked questions

What is the main difference between fundamental and technical analysis?

Fundamental analysis studies a company's business, earnings and value to find intrinsic worth. Technical analysis studies price and volume charts to judge direction. One asks what a stock is worth; the other asks what the price is doing.

What are support and resistance?

Support is a price zone where falling prices tend to stop as buyers enter. Resistance is a zone where rising prices tend to stall as sellers enter. Both are tendencies, not certainties.

How do moving average and RSI differ?

A moving average smooths past prices to show the trend and it lags price. RSI is a momentum oscillator between 0 and 100. By convention, above 70 suggests overbought and below 30 suggests oversold.

Is momentum investing technical or fundamental?

It is an investment style based on recent price strength, so its logic is closer to technical analysis. Growth and value styles lean on fundamentals.