3rd Edition

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STOCK
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BANGLADESH TECHNICAL ANALYSIS
LIMITED
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Handbook for Basic Technical Analysis

www.stockbangladesh.com
About Stock Bangladesh Limited

Mission
Our mission is simple - to make you a better investor so that you can invest conveniently at
Bangladesh Capital Market. Our Stock Bangladesh tool lets you create the web's best looking
financial charts for technical analysis. Our Scan Engine shows you the Bangladesh share
market's best investing opportunities.
In today's world, if you rely on fundamental analysis, brokers advise, share price information,
newspaper articles or business channels for your investing or trading decisions, you are
asking for a painful experience in the markets.
Whether you are a first time investor, a seasoned pro, an "in and out" day trader or a long
term investor at Dhaka stock exchange, StockBangladesh.com will provide you with the

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necessary information you need for maximum profits and success in today's dynamic
markets. Initially we are covering Dhaka Stock Exchange.

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Goal
Our goal is to help traders and investors of Bangladesh share market to achieve above-

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average returns from the markets by providing them with profitable trading signals and at the
same time protect their trading capital from large drawdowns with our sound money
management principles.
The methods used to analyze securities and make investment decisions fall into two very
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broad categories: fundamental analysis and technical analysis. Fundamental analysis involves
analyzing the characteristics of a company in order to estimate its value. Technical analysis
takes a completely different approach; it doesn't care one bit about the "value" of a company
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or a commodity. Technicians (sometimes called chartists) are only interested in the price
movements in the market.
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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
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will enable you to be a better trader or investor.

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Table of Contents
 
About Stock Bangladesh Limited .............................................................................................. 2 
Mission ................................................................................................................................... 2 
Goal ........................................................................................................................................ 2 
Chapter 1 .................................................................................................................................. 15 
Capital Market ......................................................................................................................... 16 
Supply & Demand.................................................................................................................... 16 
Market Analysis ....................................................................................................................... 17 

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Three Types of Market Analysis.......................................................................................... 17 
Random Walk Theory .............................................................................................................. 18 

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Efficient Market Hypothesis .................................................................................................... 18 
Fundamental Analysis .............................................................................................................. 19 
Technical Analysis ................................................................................................................... 20 
The Market Discounts Everything ....................................................................................... 20 
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Price Moves in Trends ......................................................................................................... 20 
History Tends To Repeat Itself ............................................................................................ 20 
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Criticism of Technical Analysis........................................................................................... 21 
Dow Theory ............................................................................................................................. 22 
The Basic Principles of Dow Theory ................................................................................... 24 
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Dow Theory Criticism ......................................................................................................... 26 

Chapter 2 .................................................................................................................................. 28 
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History and Construction of Charts ......................................................................................... 29 

Benefits of Using Chart ........................................................................................................... 29 
History of Charting .................................................................................................................. 30 
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Type of Charts.......................................................................................................................... 31 

Early Charts ......................................................................................................................... 31 
Line Charts ........................................................................................................................... 31 
Bar Charts ............................................................................................................................ 32 
Candlestick Charts ............................................................................................................... 33 
Point & Figure Chart............................................................................................................ 34 
Equivolume Chart ................................................................................................................ 35 
Support and Resistance ............................................................................................................ 36 
Identification and Psychology behind Support and Resistance ........................................... 37 
Support & Resistance Zone ................................................................................................. 38 
Support Become Resistance or Vice Versa ......................................................................... 39 

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Trend Line ................................................................................................................................ 40 
Drawing Trend Line ............................................................................................................. 43 
Tentative Versus the Valid Trend line ................................................................................. 43 
How to use the Trend Line................................................................................................... 44 
How to Determine the Significance of a Trend Line ........................................................... 46 
How Trend Lines Reverse Roles ......................................................................................... 46 
Measuring and Implication of Trend Line ........................................................................... 48 
Accelerating Trend Lines ..................................................................................................... 49 
Channel .................................................................................................................................... 51 
Liner Regression Channel .................................................................................................... 52 
Candlesticks ............................................................................................................................. 53 

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A Potted history ................................................................................................................... 53 

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Construction of Candlestick Charts ..................................................................................... 54 
Candlesticks vs. Traditional Bar Charts............................................................................... 54 
The Anatomy of the Candles ............................................................................................... 56 
The Psychology of Charts and Trading ................................................................................... 58 
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Candlestick Patterns ................................................................................................................. 58 
Bullish Pattern ...................................................................................................................... 59 
Bullish Candlesticks............................................................................................................. 59 
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Bearish Candlestick ............................................................................................................. 63 
Reversal Candlestick ............................................................................................................ 68 
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Neutral Candlestick .............................................................................................................. 72 

Heikin Ashi Candlesticks ..................................................................................................... 76 
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Reasons to Use Heikin Ashi ............................................................................................ 76 

Heikin Ashi Calculation ................................................................................................... 77 
Interpretation .................................................................................................................... 78 
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Doji and Spinning Tops ....................................................................................................... 79 

Chapter 3 .................................................................................................................................. 81 
Introduction to Chart Pattern: .................................................................................................. 82 
Chart Pattern ............................................................................................................................ 82 
Common Pattern Characteristics.......................................................................................... 82 
Types of Pattern ................................................................................................................... 82 
Preliminary Points Common to All Reversal Patterns ......................................................... 83 
Reversal Pattern ....................................................................................................................... 83 
The Head and Shoulders Reversal Pattern ........................................................................... 83 
The inverse Head and Shoulders.......................................................................................... 86 
Double Top .......................................................................................................................... 87 

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 Double Bottom ..................................................................................................................... 88 
Triple Bottom ....................................................................................................................... 89 
Triple Top ............................................................................................................................ 91 
Rounding Top ...................................................................................................................... 92 
Rounding Bottom ................................................................................................................. 93 
Continuation Patterns ............................................................................................................... 94 
Triangles .............................................................................................................................. 94 
Symmetrical Triangle........................................................................................................... 95 
Ascending Triangle .............................................................................................................. 96 
Descending Triangles........................................................................................................... 97 
Wedge and Climax ............................................................................................................... 98 

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Flag and Pennant ................................................................................................................ 100 

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Rectangle............................................................................................................................ 103 
Diamond Pattern ................................................................................................................ 103 
Measure Move ................................................................................................................... 104 
Gaps ....................................................................................................................................... 105 
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Breakaway (or Breakout) Gaps .......................................................................................... 106 
Runaway Gaps (or Measuring Gaps) ................................................................................. 107 
Exhaustion Gaps ................................................................................................................ 107 
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Elliot Wave Theory ................................................................................................................ 108 
Impulse Waves ................................................................................................................... 109 
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Impulse ............................................................................................................................... 110 

Truncation .......................................................................................................................... 111 
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Corrective Waves ............................................................................................................... 112 

Zigzags ............................................................................................................................... 112 
Flats .................................................................................................................................... 113 
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Triangles ............................................................................................................................ 114 

The Fibonacci sequence ......................................................................................................... 115 
The Golden Ratio ............................................................................................................... 115 
Fibonacci Retracement....................................................................................................... 116 
Fibonacci Retracement in Uptrend .................................................................................... 116 
Fibonacci Retracement in Downtrend ............................................................................... 117 
Fibonacci Fan ..................................................................................................................... 118 
Fibonacci Arcs ................................................................................................................... 119 
Chapter 4 ................................................................................................................................ 121 
Indicators and Oscillators ...................................................................................................... 122 
Lagging Indicators ............................................................................................................. 122 

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 Leading Indicator ............................................................................................................... 122 
Moving Averages ............................................................................................................... 123 
Types of Moving Averages ................................................................................................ 124 
Simple Moving Average (SMA) .................................................................................... 124 
Weighted Moving Average (WMA) .............................................................................. 125 
Exponential Moving Average (EMA) ........................................................................... 126 
Differences between SMA, EMA and WMA .................................................................... 127 
Interpreting Moving Averages ........................................................................................... 128 
Determining Trend Direction ............................................................................................. 128 
Determining Trend Reversals ............................................................................................ 129 
Determining Support and Resistance ................................................................................. 130 

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Moving Average Convergence Divergence (MACD) ....................................................... 131 

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Interpreting MACD ........................................................................................................ 132 
Moving Average Crossover ........................................................................................... 132 
Centerline/Zero Line Crossover..................................................................................... 133 
MACD Histogram.......................................................................................................... 134 
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Average Directional Index (ADX)..................................................................................... 135 
Interpreting Average Directional Index (ADX) ............................................................. 138 
DI or DMI Crossover ..................................................................................................... 138 
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Peak of The Trend .......................................................................................................... 139 
Minor Crossover ............................................................................................................ 139 
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ADX Line....................................................................................................................... 140 

Determining Trend Direction and Strength ................................................................... 141 
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Parabolic SAR.................................................................................................................... 142 

Volume Based Indicators ....................................................................................................... 143 
Principles of Volume ......................................................................................................... 143 
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Money Flow Index ............................................................................................................. 150 

Introduction .................................................................................................................... 150 
Calculation ..................................................................................................................... 150 
On Balance Volume ........................................................................................................... 153 
Calculation ..................................................................................................................... 153 
Accumulation Distribution Line ........................................................................................ 156 
Calculation ..................................................................................................................... 156 
Chapter 5 ................................................................................................................................ 159 
Volatility Indicators ............................................................................................................... 160 
Bollinger Bands ................................................................................................................. 160 
Calculation ..................................................................................................................... 160 

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 Signal: W-Bottoms......................................................................................................... 161 
Signal: M-Tops .............................................................................................................. 162 
Bollinger Bounce ........................................................................................................... 162 
Bollinger Squeeze .......................................................................................................... 163 
Percentage Bands or Envelopes ......................................................................................... 164 
Calculation ..................................................................................................................... 164 
Trend Identification ....................................................................................................... 165 
Average True Range (ATR)............................................................................................... 166 
True Range ..................................................................................................................... 166 
Calculation ..................................................................................................................... 167 
Absolute ATR ................................................................................................................ 168 

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Keltner Channels ................................................................................................................ 169 

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Calculation ..................................................................................................................... 169 
Momentum Indicators ............................................................................................................ 170 
Relative Strength Index (RSI)............................................................................................ 170 
Calculation ..................................................................................................................... 171 
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Interpreting RSI ............................................................................................................. 172 
Stochastics.......................................................................................................................... 173 
Calculation ..................................................................................................................... 173 
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StochRSI ............................................................................................................................ 175 
Calculation ..................................................................................................................... 175 
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Overbought/Oversold ..................................................................................................... 176 

Calculation ..................................................................................................................... 176 
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Overbought and Oversold Crossovers ........................................................................... 176 

Centerline Crossovers .................................................................................................... 177 
Positive and Negative Divergences ............................................................................... 177 
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Strong Trend .................................................................................................................. 177 

Commodity Channel Index (CCI)...................................................................................... 177 
Calculation ..................................................................................................................... 178 
Emerging New Trend ..................................................................................................... 178 
Overbought/Oversold ..................................................................................................... 179 
Rate of Change (ROC) ....................................................................................................... 180 
Overbought/Oversold Situation ..................................................................................... 180 
William %R ....................................................................................................................... 182 
Calculation ..................................................................................................................... 182 
Overbought Oversold ..................................................................................................... 183 
Ultimate Oscillator ............................................................................................................. 184 

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 Calculation ..................................................................................................................... 184 
Composite indicators ............................................................................................................. 186 
Guppy Multiple Moving Averages .................................................................................... 186 
Interpretation .................................................................................................................. 187 
Trend Direction .............................................................................................................. 187 
Trend Reversal ............................................................................................................... 188 
Trend Strength ............................................................................................................... 189 
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Pullbacks ........................................................................................................................ 190 
Breakouts ....................................................................................................................... 190 
Tactics ............................................................................................................................ 191 

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Rules .............................................................................................................................. 192 

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Advantages ..................................................................................................................... 192 
Disadvantages ................................................................................................................ 192 
Ichimoku Chart .................................................................................................................. 193 
Interpretation .................................................................................................................. 194 
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Trend direction ............................................................................................................... 194 
Trend Reversal ............................................................................................................... 195 
Trend Strength ............................................................................................................... 195 
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Pullbacks ........................................................................................................................ 196 
Breakout ......................................................................................................................... 197 
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Divergence Study ................................................................................................................... 198 

1. Regular Divergence ....................................................................................................... 199 
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2. Hidden Divergence ........................................................................................................ 201 

3. Exaggerated Divergence ................................................................................................ 203 
Divergence Trading Strategy ................................................................................................. 205 
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Indicators Used .................................................................................................................. 205 

Entry ................................................................................................................................... 205 
Exit ..................................................................................................................................... 205 
Stop Loss............................................................................................................................ 205 
Chapter 6 ................................................................................................................................ 206 
Behavioral Finance ................................................................................................................ 207 
Common Mental Mistakes ..................................................................................................... 207 
Overconfidence ...................................................................................................................... 208 
Examples of Overconfidence ............................................................................................. 208 
Anchoring .............................................................................................................................. 209 
Examples of Anchoring ..................................................................................................... 209 

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Metal Accounting................................................................................................................... 209 
Examples of Mental Accounting ....................................................................................... 210 
Confirmation .......................................................................................................................... 210 
Examples of Confirmation ................................................................................................. 210 
Hindsight Bias ........................................................................................................................ 211 
Examples of Hindsight Bias............................................................................................... 211 
Herd Behavior ........................................................................................................................ 211 
Examples of Hard Behavior ............................................................................................... 211 
Applying Behavioral Finance ................................................................................................ 211 
Classification of Capital Market Participants ........................................................................ 212 
Institutional Investors......................................................................................................... 212 

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Speculators ......................................................................................................................... 212 

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Retail Investors .................................................................................................................. 213 
Long Term Investors .......................................................................................................... 213 
Short Term Traders ............................................................................................................ 213 
High Frequency Traders .................................................................................................... 213 
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Zero Sum Game ..................................................................................................................... 214 
Capital Market Bubble ........................................................................................................... 214 
Examples of Bangladesh Capital Market Bubbles............................................................. 214 
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Investor’s Psychological Behavior ........................................................................................ 216 
Chapter 7 ................................................................................................................................ 219 
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Technical Analysis Platform .................................................................................................. 220 

How to Install Amibroker ...................................................................................................... 220 
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Chapter 8 ................................................................................................................................ 242 

Trading Strategy..................................................................................................................... 243 
Instrument Selection .............................................................................................................. 243 
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Market Timing ....................................................................................................................... 243 

Money Management .............................................................................................................. 244 
Position Sizing ....................................................................................................................... 244 
Stop Loss................................................................................................................................ 244 
Exit Strategy........................................................................................................................... 245 
Fixed Stop .......................................................................................................................... 245 
Trailing Stop Loss .............................................................................................................. 245 
Indicator Based Stop/Dynamic Stop .................................................................................. 245 
Trading Psychology ............................................................................................................... 245 
Knowing Yourself.................................................................................................................. 246 
There is no “Holy Grail” ........................................................................................................ 246 

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Independent Thinking ............................................................................................................ 246 
Patience is a Profitable Virtue................................................................................................ 247 
Sticking With the Plan ........................................................................................................... 247 
Psychological Problems in Trading ....................................................................................... 247 
Fear .................................................................................................................................... 247 
Greed .................................................................................................................................. 248 
Pride ................................................................................................................................... 248 
Overcoming Psychological Problems in Trading .................................................................. 248 
Complete Trading Strategies.................................................................................................. 251 
Trading the W Patterns ...................................................................................................... 251 
Entry Conditions ............................................................................................................ 255 

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Stop Loss........................................................................................................................ 256 

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Trading Pullbacks .............................................................................................................. 256 
Entry Conditions ............................................................................................................ 257 
Exit Conditions .............................................................................................................. 257 
Stop Loss........................................................................................................................ 257 
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Reference ............................................................................................................................... 259 
Appendix ................................................................................................................................ 260 
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Table of Figure

Figure 1.1: Supply & Demand ................................................................................................. 17 

Figure 1.2: Dow Theory Trend | HEIDELBCEM ................................................................... 23 
Figure 1.3: Dow Theory Up Trend | BATBC .......................................................................... 25 
Figure 2.1: Line Chart | BEXIMCO ........................................................................................ 32 
Figure 2.2: Bar Chart | TITASGAS ......................................................................................... 33 
Figure 2.3: Candlestick Chart | TITASGAS ............................................................................ 34 
Figure 2.4: Point and Figure Chart .......................................................................................... 35 
Figure 2.5: EquiVolume Chart ................................................................................................. 36 
Figure 2.6: Support & Resistance | FLEASEINT .................................................................... 37 
Figure 2.7: Support & Resistance Zone | FLEASEINT ........................................................... 38 
Figure 2.8: Support & Resistance | FLEASEINT .................................................................... 39 
Figure 2.9: Support Become Resistance .................................................................................. 40 

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Figure 2.10: Support Become Resistance | FEDERALINS ..................................................... 40 
Figure 2.11: Trend Line | Up Trend ......................................................................................... 41 

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Figure 2.12: Trend Line | Uptrend line at work | LANKABAFIN .......................................... 42 
Figure 2.13: Trend Line | Down Trend .................................................................................... 42 
Figure 2.14: Trend Line | Down trend line at work | DSEGEN (Feb 2012 - Jul 2012) ........... 43 
Figure 2.15: Trend Line | Braking up trend line ...................................................................... 44 
Figure 2.16: Trend Line | Braking up trend line | DSEGEN (Feb 2012 - May 2012) ............. 45 
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Figure 2.17: Trend Line | Braking down trend line ................................................................. 45 
Figure 2.18: Trend Line | Braking down trend line | DSEGEN ............................................... 46 
Figure 2.19: Trend & Support Resistance................................................................................ 47 
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Figure 2.20: Trend & Support Resistance | MEGHNACEM .................................................. 47 
Figure 2.21: Trend & Support Resistance................................................................................ 48 
Figure 2.22: Trend & Support Resistance | BDAUTO ............................................................ 48 
Figure 2.23: Trend Line | Accelerating .................................................................................... 49 
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Figure 2.24: Trend Line | Accelerating .................................................................................... 50 

Figure 2.25: Channel | MITHUNKNIT ................................................................................... 51 
Figure 2.26: Linear Regression Line | ABBANK .................................................................... 53 
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Figure 2.27: Bar Chart Construction ........................................................................................ 54 

Figure 2.28: Candlestick Formation ........................................................................................ 55 
Figure 2.29: Bar Chart (factual, but uninspiring) .................................................................... 55 
Figure 2.30: Candlestick Chart (factual, and emotive) ............................................................ 56 
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Figure 2.31: Candlestick Formation ........................................................................................ 57 

Figure 2.32: Candlesticks Terminology ................................................................................... 58 
Figure 2.33: Long White (empty)/ Green Line Candlestick | BEXIMCO ............................... 60 
Figure 2.34: Bullish Candlestick | Hammer | BEDL ............................................................... 60 
Figure 2.35: Bullish Candlestick | | Piercing Line | BEDL ..................................................... 61 
Figure 2.36: Bullish Candlestick | Bullish Engulfing | EASTLAND ...................................... 62 
Figure 2.37: Bullish Candlestick | Morning Star | POWERGRID ........................................... 62 
Figure 2.38: Bullish Candlestick | Bullish Doji | POWERGRID ............................................ 63 
Figure 2.39: Bearish Candlestick | Bearish Long Black/Red line | EBL ................................. 64 
Figure 2.40: Bearish Candlestick | Hanging Man | BEACHHATCH ...................................... 65 
Figure 2.41: Bearish Candlestick | Dark Cloud Cover | DESHBANDHU .............................. 65 
Figure 2.42: Bearish Candlestick | Bearish Engulfing | DESHBANDHU .............................. 66 
Figure 2.43: Bearish Candlestick | Evening Star | SINGERBD .............................................. 67 
Figure 2.44: Bearish Candlestick | Shooting Star | DSEGEN.................................................. 68 

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Figure 2.45: Reversal Candlestick | Long Legged Doji | FUWANGCER............................... 69 
Figure 2.46: Reversal Candlestick | Dragonfly Doji | ASIAPACINS ..................................... 70 
Figure 2.47: Reversal Candlestick | Gravestone Doji | ONEBANKLTD ................................ 70 
Figure 2.48: Reversal Candlestick | Star | MIDFIN ................................................................. 71 
Figure 2.49: Reversal Candlestick | Doji Star | NAVANACNG ............................................. 72 
Figure 2.50: Neutral Candlestick | Marubozu | DSEGEN ....................................................... 73 
Figure 2.51: Neutral Candlestick | Spinning Tops | ACIFORMULA...................................... 74 
Figure 2.52: Neutral Candlestick | Doji | BDLAMPS ............................................................. 74 
Figure 2.53: Neutral Candlestick | Harami | RUPALIINS....................................................... 75 
Figure 2.54: Neutral Candlestick | Harami Cross | ICBISLAMIC .......................................... 76 
Figure 2.55: Heiken Ashi Candle | FEDERALINS ................................................................. 78 
Figure 2.56: Doji and Spinning Tops ....................................................................................... 79 
Figure 2.57: Heiken Ashi Candle | GP..................................................................................... 80 
Figure 3.1: Example of Head and Shoulder Top ..................................................................... 84 

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Figure 3.2: Head and Shoulder Top | DSEGEN ...................................................................... 85 
Figure 3.3: Head and Shoulder Bottom | DSEGEN ................................................................. 87 
Figure 3.4: Double Top or M Pattern....................................................................................... 87 

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Figure 3.5: Double Top or M Pattern| CITYBANK ................................................................ 88 
Figure 3.6: Double Bottom or W pattern ................................................................................. 89 
Figure 3.7: Double Bottom or W pattern| MIDASFIN ............................................................ 89 
Figure 3.8: Triple Bottom Pattern ............................................................................................ 90 

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Figure 3.9: Triple Bottom Pattern | SINOBANGLA ............................................................... 90 
Figure 3.10: Triple Top Pattern ............................................................................................... 91 
Figure 3.11: Triple Top Pattern | BXSYNTH .......................................................................... 92 
Figure 3.12: Rounding Top Pattern | AL-HAJTEX ................................................................. 93 
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Figure 3.13: Rounding Bottom | ISLAMIBANK .................................................................... 94 
Figure 3.14: Bullish Symmetrical Triangle ............................................................................. 95 
Figure 3.15: Ascending Triangle ............................................................................................. 95 
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Figure 3.16: Descending Triangle............................................................................................ 95 

Figure 3.17: Symmetrical Triangle | EHL ............................................................................... 96 
Figure 3.18: Ascending Triangle | MERCANBANK .............................................................. 97 
Figure 3.19: Falling Wedge | MEGHNACEM ........................................................................ 99 
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Figure 3.20: Rising Wedge | JAMUNABANK ..................................................................... 100 

Figure 3.21: Flag & Pennant .................................................................................................. 100 
Figure 3.22: Bullish Flag Pattern | MICEMENT ................................................................... 101 
Figure 3.23: Bearish Flag | SONARBAINS .......................................................................... 102 
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Figure 3.25: Bearish Pennant | BEDL.................................................................................... 102 

Figure 3.26: Rectangle or Box Pattern | METROSPIN ......................................................... 103 
Figure 3.27: Diamond Pattern | RAHIMAFOOD .................................................................. 104 
Figure 3.28: Measured Moves | DSEGEN ............................................................................. 105 
Figure 3.29: Downward Gap | TAKAFULINS...................................................................... 106 
Figure 3.30: Breakaway or Breakout Gap | EASTERNINS .................................................. 106 
Figure 3.31: Measuring or Running GAP | EASTERNINS .................................................. 107 
Figure 3.32: Exhaustion GAP | NPOLYMAR ....................................................................... 108 
Figure 3.33: Ideal Elliott Waves within an Upward Motive Impulse Wave ......................... 109 
Figure 3.34: Diagonal leading or ending (in upward trend) .................................................. 111 
Figure 3.35: Truncated Five in Uptrend ................................................................................ 112 
Figure 3.36: Single and double zigzag Corrective Pattern .................................................... 113 
Figure 3.37: Single and Double Corrective Pattern ............................................................... 114 
Figure 3.38: Fibonacci in Uptrend | DSEGEN ...................................................................... 116 

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Figure 3.39: Fibonacci Retracement Example | DSEGEN .................................................... 117 
Figure 3.40: Downward Fibonacci | DSEGEN ...................................................................... 117 
Figure 3.41: Fibonacci Fan Downtrend | DSEGEN............................................................... 118 
Figure 3.42 Fibonacci Fan Uptrend| GP ................................................................................ 119 
Figure 3.43: Fibonacci Arc | DSEGEN.................................................................................. 119 
Figure 3.44 Fibonacci Arc | BDFINANCE ............................................................................ 120 
Figure 4.1: Moving Average | (SMA10) | DSEGEN ............................................................. 124 
Figure 4.2: Moving Average | (SMA30) | DSEGEN ............................................................. 125 
Figure 4.3: Moving Average | (WMA 30) | DSEGEN .......................................................... 126 
Figure 4.4: Moving Average | (EMA30) | DSEGEN ............................................................. 127 
Figure 4.5: Moving Average | SMA 30, EMA 30 and WMA 30 | DSEGEN ........................ 128 
Figure 4.6: Moving Average | WMA30 Trend line | CONFIDCEM ..................................... 129 
Figure 4.7: Moving Average | SMA10 and EMA30 Crossover | CONFIDCEM .................. 130 
Figure 4.8: Moving Average | SMA 30 Support and Resistance | AFTABAUTO ................ 131 

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Figure 4.9: MACD | MICEMENT ......................................................................................... 132 
Figure 4.10: MACD MA Crossovers | MICEMENT............................................................. 133 
Figure 4.11: MACD Centerline Crossovers | ARAMITCEM ............................................... 134 

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Figure 4.12: MACD Histogram Study | MICEMENT........................................................... 135 
Figure 4.13: ADX Lines | DESCO ........................................................................................ 137 
Figure 4.14: ADX DI Crossover | DSEGEN. ........................................................................ 138 
Figure 4.15: ADX Peak of The Trend | DESCO ................................................................... 139 

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Figure 4.16: ADX Minor Crossover | DESCO ...................................................................... 140 
Figure 4.17: ADX Line | DESCO .......................................................................................... 141 
Figure 4.18: ADX Determining Trend Strength and Direction DESCO ............................... 142 
Figure 4.19: Parabolic SAR | DSEGEN ................................................................................ 143 
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Figure 4. 21: Volume Histogram ........................................................................................... 144 
Figure 4.22: Volume Leads Price .......................................................................................... 144 
Figure 4.23: Bearish Volume Configuration ......................................................................... 145 
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Figure 4.24: Bearish Volume Configuration ......................................................................... 145 

Figure 4.25: Volume | Parabolic Blow off ............................................................................. 146 
Figure 4.26: Volume | Selling Climax ................................................................................... 146 
Figure 4.27: Low Volume on Test ......................................................................................... 147 
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Figure 4.28: Bearish Volume Configuration ......................................................................... 147 

Figure 4.29: Volume | Churning ............................................................................................ 148 
Figure 4.30: Volume | Accumulation..................................................................................... 148 
Figure 4.31: Volume | Temporary Exhaustion ...................................................................... 149 
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Figure 4.32: Volume| Bearish Top Configuration ................................................................. 149 

Figure 4.33: MFI | JAMUNAOIL .......................................................................................... 152 
Figure 4.34: MFI & RSI | NBL .............................................................................................. 152 
Figure 4.35: OBV | BEXIMCO ............................................................................................. 155 
Figure 4.36: OBV | GP........................................................................................................... 155 
Figure 4.37: ADL, OBV | BEXIMCO ................................................................................... 158 
Figure 5.1: Bollinger Bands | DSEGEN ................................................................................ 160 
Figure 5.2: Bollinger Bands W Pattern | DSEGEN ............................................................... 161 
Figure 5.3: Bollinger Bands M Pattern | FUWANGFOOD ................................................... 162 
Figure 5.4: Bollinger Band Bounce | DUTCHBANGL ......................................................... 163 
Figure 5.5: Bollinger Bands Squeeze and Expansion | DUTCHBANGL.............................. 164 
Figure 5.6: Envelopes or Percentage Bands | DSEGEN ........................................................ 165 
Figure 5.8: Envelopes or Percentage Bands Strength | DSEGEN ......................................... 166 
Figure 5.9: Average True Range............................................................................................ 167 

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Figure 5.10: ATR | NTC ........................................................................................................ 168 
Figure 5.11: ATR | PREMIERBAN ...................................................................................... 169 
Figure 5.12: Keltner Bands | MPETROLEUM..................................................................... 170 
Figure 5.13: RSI Overbought & Oversold | BEXIMCO........................................................ 172 
Figure 5.14: Stochastic Overbought & Oversold | SUMITPOWER ..................................... 174 
Figure 5.15: StochRSI | DSEGEN ......................................................................................... 176 
Figure 5.16: Commodity Channel Index (CCI) | BEXIMCO ................................................ 179 
Figure 5.17: Commodity Channel Index (CCI), Overbought Oversold| BEXIMCO ............ 180 
Figure 5.18: Rate of Change (ROC), Oversold | MPETROLEUM ....................................... 181 
Figure 5.19: William % R | MPETROLEUM ....................................................................... 182 
Figure 5.20: William % R Overbought Oversold | MPETROLEUM .................................... 184 
Figure 5.21: Ultimate Oscillator | DSEGEN.......................................................................... 185 
Figure 5.22: Guppy MMA | BEXIMCO ................................................................................ 186 
Figure 5.23: Guppy MMA Trend Direction | BEXIMCO ..................................................... 187 

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Figure 5.24: Guppy MMA Trend Reversal | NHFIL ............................................................. 188 
Figure 5.25: Trend Strength ................................................................................................... 189 
Figure 5.26: Pullbacks ........................................................................................................... 190 

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Figure 5.27: Breakouts ........................................................................................................... 191 
Figure 5.28: Tactics ............................................................................................................... 191 
Figure 5.29: Ichimoku | DSEGEN ......................................................................................... 193 
Figure 5.30: Ichimoku Trend Direction | ARAMITCEM. ..................................................... 194 

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Figure 5.31: Ichimoku Trend Reversal | DSEGEN ............................................................... 195 
Figure 5.32: Ichimoku Trend Strength | ARAMITCEM ....................................................... 196 
Figure 5.33: Ichimoku Pullback | ASIAPACINS .................................................................. 197 
Figure 5.34: Ichimoku Breakout | HEIDELBCEM ............................................................... 198 
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Figure 5.35: Bullish Regular Divergence | ACIFORMULA ................................................. 200 
Figure 5.36: Regular Bearish Divergence | BEXIMCO ........................................................ 200 
Figure 3.37: Hidden Bullish Divergence | ISLAMICFIN ..................................................... 202 
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Figure 5.38: Hidden Bearish Divergence | DSEGEN ............................................................ 202 

Figure 5.39: Exaggerated Bullish Divergence | FASFIN ...................................................... 204 
Figure 5.40: Exaggerated Bearish Divergence | DESCO ...................................................... 204 
Figure 6.1: Dhaka Stock Exchange 1987 Bubble .................................................................. 215 
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Figure 6.2: Dhaka Stock Exchange 1996 Bubble .................................................................. 215 

Figure 6.3: Dhaka Stock Exchange 2010 Bubble .................................................................. 216 
Figure 6.4: Investor's Psychological Behavior ...................................................................... 217 
Figure 8.1: Trading Strategy | W Pattern and Semi-W Patterns Shape ................................. 252 
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Figure 8.2: Trading Strategy | W Patterns Trend Line Breakout | APEXADELFT .............. 253 
Figure 8.3: W Patterns Resistance Line Breakout | APEXADELFT..................................... 254 
Figure 8.4: Trading Strategy | Semi W Pattern Trend Line Breakout | DESCO ................... 254 
Figure 8.5: Trading Strategy | Semi W Pattern Resistance Line Breakout | DESCO ............ 255 
Figure 8.6: Trading Strategy | Swing Point High, Swing Point Low .................................... 256 
Figure 8.7: Pullbacks | 1st Pullback after MA Crossover | DHAKABANK ......................... 258 
Figure 8.8: Trading Strategy | Pullbacks | Pullback after Breakout DHAKABANK ............ 258 

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Chapter 1

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Learning Objectives

 To understand the operations, trading and investing of stock market

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 Understand Demand and Supply of a particular stock
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 Knowledge about Efficient Market hypothesis and Random walk theory
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 Fundamental Analysis


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Technical Analysis

 Principles of Technical Analysis

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 Dow Theory

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Chapter 2
Learning Objectives

 After Completing Types of Chart an investor /trader will get concept of various types
of chart, formation of chart, and uses of chart to Understand and determine overall
market trend

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 Candlesticks are the most popular way of visualizing price movements, demand &

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Supply. After Completing Candlestick chart an investor /trader will get idea about
buyers & sellers trading psychology, Emotion of the market, Indication of market
turning points, Furnish unique market insights and Get trigger before buying / selling
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 From Bullish Candlestick Pattern investors/Traders will get indications of a change of
trend from bearish to bullish or confirmation a continuing bullish trend. From Bearish
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Candlestick Pattern investors/Traders will get indications of a change of trend from
Bullish to Bearish or confirmation a continuing Bearish trend. From Neutral
Candlestick Pattern investors/Traders will get idea when he/she has to observe the
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market or not take any buy or sell decision. Reversal Pattern will help
investors/traders to identify the possible changes of the current trend. So it allows a
trader to take position very early of a new trend
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 Support and resistance lines are key components of the market memory. After
learning support and resistance level, Investors particularly traders – will able to
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identify psychological level of price. By using Support and Resistance level an

investor or a trader can take buy or sell decision and this is very popular trading
strategy for Breakout Trader

 After trend line analysis an investor/Trader will easily understand the support and
resistance level of a rising or falling stock. Trend line helps investors/traders to take
the appropriate position. Basically trend line breakout or break down is the starting of
new trend. So it helps to take Buy or Sell decision and the Breakout Traders basically
follow this trading style

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 Figure 2.21: Trend & Support Resistance

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Figure 2.21 shows very often a down Trend will become a support line once it's been broken
on the upside.

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Figure 2.22: Trend & Support Resistance | BDAUTO

Now situation is different. In this situation previous down trend line now is working as
support level. See the Figure 2.22 of BDAUTOCA 2012. From January 2012 to February
2012 we have seen a downtrend and drawn downward trend line. On 3rd February 2012 price
broke the downtrend trend line. Again when the price was declined that time previous
downtrend line worked as a support level and price bounced back from that level.

Measuring and Implication of Trend Line

Trend line can be used to help determine price objectives. We will have a lot more to say
about price objectives in the next chapter on price patterns. In fact, some of the rice
objectives addressed that are derived from various price patterns are similar to the one we

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make because on quote boards prices are often displayed either as red (black) or green
(white) depending on whether the market is higher or lower compared to the previous close.

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Figure 2.31: Candlestick Formation
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If, for example, a stock closed at 52 taka yesterday, then opened today at 56 taka, but by
afternoon trade had sold off to close at 54 taka, it would still be up 2 taka on the day.
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However, the candlestick’s real body would be big and red (Black) because the stock opened
at 56 taka then closed at 54 taka. We have illustrated this in Figure 2.29.
Let’s finish off this walk through the construction by adding some terminology into the
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equation.
The figure below shows the other terminology you need to be aware of with respect to the
different elements of an individual candlestick.
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 Bullish engulfing lines. Engulfing patterns consist of two bodies and where
the second body ―engulfs‖ the first. This pattern is strongly bullish if it
occurs after a significant downtrend (i.e., it acts as a reversal pattern). It
occurs when a small bearish (filled-in) line is engulfed by a large bullish
(empty) line.

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Figure 2.36: Bullish Candlestick | Bullish Engulfing | EASTLAND

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Morning star: The morning Star pattern is a bullish reversal signal after a
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downtrend. The first bar has a long black body, the second body gaps down
from the first (the shadows may still overlap) and may be filled or hollow.
This is a bullish pattern signifying a potential bottom. The "star" indicates a
possible reversal and the bullish (empty) line confirms this.

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Chapter 3

Learning Objectives

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 Chart patterns are useful to measure the level of momentum, support and resistance,
and other indications of strength or weakness in a stock. After completing Chart
patterns it will help traders to determine market direction, trader’s psychology as well
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as time of entries and exits. Not only that a trader will be able to identify chart
patterns properly
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 By studying Elliot wave an investor or trader can understand the various waves of a
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particular stock or market very easily

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 Fibonacci Study help to understand the different price level from where price may
retrace or pullback
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 Figure 3.6: Double Bottom or W pattern

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Again move to the Dhaka Stock Exchange. See the Figure 3.7. We can see a chart of
MIDFIN form December 2011 to May 2012. In 9th February 2012 we can see MIDFIN got
support and started to increase but again decline because of Resistance line. Again 12th March
2012 MIDFIN got support from the support zone and started to increased and broke the
resistance line in 25th March 2012.
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Figure 3.7: Double Bottom or W pattern| MIDASFIN

Both Top and Bottom patterns form over a number of months—even years—and are thus
longer-term. They are more observable in charts using weekly and monthly data and mostly
in retrospect.
Triple Bottom
The surprising thing about triple bottoms is their lack of surprises. More about that in a
moment. In a bull market, triple bottoms have a low failure rate and a high average rise. In a
bear market, the results are about what you would expect from a bullish pattern in a bear

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market. Almost two out of three triple bottoms will throw back, so consider that before you
trade. If price continues down after the throwback, then your trade may well end up with a
loss. If it rebounds, the numbers suggest that performance will suffer. In other words, the best
performers are triple bottoms without throwbacks. Another surprise is that narrow patterns
perform better than wide ones. Usually, width is not a good indicator of performance but
height is. The reason for that unusual behavior is unclear. Of one thing we are certain, triple
bottoms in a bear market act differently than those in a bull market. Often the results are
opposite. For example, when the last bottom is above the middle bottom, performance excels
in a bull market but underperforms in a bear market. Figure 3.8 shows a format of Triple
Bottom pattern.

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Figure 3.8: Triple Bottom Pattern
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Again move to our real market example. Figure 3.9 shows an example of a triple bottom of
SINOBANGLA. Chart shows Prices descend to the 33 Taka to 32 Taka area three times and
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each time, they turn away; the level marks a zone of support preventing future declines. The
sharp V-shaped recession, especially during the last valley, is typical for triple bottoms. The
rounded-looking rise from the first valley to the second is also characteristic of triple bottoms
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but not a strict requirement.

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Figure 3.9: Triple Bottom Pattern | SINOBANGLA

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one, totaling to two. Then there are three corrective waves and five impulse waves, totaling
eight waves. Each of these numbers is part of the Fibonacci sequence. If we take the
progression further and include smaller and smaller waves, the number of waves continues in
a Fibonacci sequence. Although this relation to Fibonacci numbers is interesting, it is
portraying the ideal. But remember if you take any two whole numbers and add them
together, then add to the sum the previous highest number, eventually you will arrive at phi,
the Fibonacci ratio (1.618), between the highest number and the previous highest number.
Thus, the ratio is the universal relation rather than the numbers themselves. It is the ratio and
derivatives of it that are applied to stock markets.

Fibonacci Retracement
The first thing you should know about the Fibonacci
Fibonacci Retracement: it tool is that it works best when the market is trending.
works as a support or

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The idea is to go long (or buy) on a retracement at a
resistance level and shows Fibonacci support level when the market is trending
the possible retracement

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up, and to go short (or sell) on a retracement at a
level of price. Fibonacci resistance level when the market is trending
down.
In order to find these retracement levels, you have to
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find the recent significant Swing Highs and Swings
Lows. Then, for downtrends, click on the Swing High and drag the cursor to the most recent
Swing Low.
For uptrend, do the opposite. Click on the Swing Low and drag the cursor to the most recent
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Swing High. Now, let's take a look at some examples on how to apply Fibonacci retracements
levels in the markets.
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Fibonacci Retracement in Uptrend

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Figure 3.38: Fibonacci in Uptrend | DSEGEN

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Chapter 4

Learning Objectives

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 Moving averages smooth out market rate fluctuations that often occur with each

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reporting period in a price chart. Moving averages can be used to identify the
direction of the trend or define potential support and resistance levels


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MACD confirms trend and trend reversals. The MACD chart generates signal of
picking and dumping points
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 Price based indicators are useful to understand the market and price movement from
different angles and views. Combination of indicators can detect exact reaction points
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of the market. Individual range bound indicators and free indicators generate trading
signals through the crossover of levels
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 Price and volume based indicators will help to Clear understand the actual direction of
the market. Volume based indicators show weakness and strength of the market more
accurately than any other indicators

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Figure 4.8: Moving Average| SMA30 Support and Resistance | AFTABAUTO

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Moving Average Convergence Divergence (MACD)
It is an oscillator technique that uses 2 exponential moving averages. The Moving Average
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Convergence Divergence indicator, or simply MACD, was developed by Gerald Appel. What
makes this indicator so useful is that it combines some
of oscillator principles with a dual moving average
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crossover approach. You will see only two lines on

MACD is a very popular your computer screen although three lines are actually
and widely used indicator used in its calculation. The faster line (called the
which can detect both MACD line) is the difference between two
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trend and momentum. exponentially smoothed moving averages of closing

prices (usually the last 12 and 26 days or weeks). The
slower line (called the signal line) is usually a 9 period
exponentially smoothed average of the MACD line.
Appel originally recommended one set of numbers for buy signals and another for sell
signals. Most traders, however, utilize the default values of 12, 26 and 9 in all instances.
Later Thomas Aspray added histograms in MACD to measure the distance between MACD
line and signal line.

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Chapter 5

Learning Objectives

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 Volatility indicators help to understand the fluctuation or volatility of a stock or
market. After completing volatility indicators an investor or trader can easily
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understand which stock is more volatile and which stock is less volatile


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Momentum indicators help to detect early trend reversal signals and price movement
direction. Also help to determine short term entry and exit. Momentum indicators help
to identify changes of momentum in a major trend
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 Composite indicators allow investors to detect various entry signals from a single
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indicator
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True Range
Wilder started with a concept called True Range (TR), which is defined as the greatest of the
following:

Method 1: Current High less the current Low

Method 2: Current High less the previous Close (absolute value)
Method 3: Current Low less the previous Close (absolute value)

Absolute values are used to ensure positive numbers. After all, Wilder was interested in
measuring the distance between two points, not the direction. If the current period's high is
above the prior period's high and the low is below the prior period's low, then the current
period's high-low range will be used as the True Range. This is an outside day that would use
Method 1 to calculate the TR. This is pretty straight forward. Methods 2 and 3 are used when

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there is a gap or an inside day. A gap occurs when the previous close is greater than the
current high (signaling a potential gap down or limit move) or the previous close is lower

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than the current low (signaling a potential gap up or limit move). The image below shows
examples of when methods 2 and 3 are appropriate.
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Figure 5.8: Average True Range

Example A: A small high/low range formed after a gap up. The TR equals the absolute value
of the difference between the current high and the previous close.

Example B: A small high/low range formed after a gap down. The TR equals the absolute
value of the difference between the current low and the previous close.

Example C: Even though the current close is within the previous high/low range, the current
high/low range is quite small. In fact, it is smaller than the absolute value of the difference
between the current high and the previous close, which is used to value the TR.

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Chapter 6

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Learning Objectives

 To understand the behavior of market

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 Introduction of market participants and their activities
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 Investor common psychological behavior the way to act like a professional
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Examples of Bangladesh Capital Market Bubbles

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Figure 6.1: Dhaka Stock Exchange 1987 Bubble
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Figure 6.2: Dhaka Stock Exchange 1996 Bubble

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Chapter 7

Learning Objectives

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 Introduction to the technical analysis platform


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Manage and use of information in an organize way

 Uses of various indicators

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 Customize own indicators

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1. Go To http://www.stockbangladesh.com/download_stock_data.php (Download section)
daily after 4 PM.
2. Click on “Download last trading day data all together in a file”. It will open
http://www.stockbangladesh.com/download_last_day_data.php page.
3. Select CSV format and click Download.
4. Save the Downloaded file in your computer
5. Now from amibroker select File>Import wizard…
6. Pick file from your computer that you have downloaded from stockbangladesh.com
7. Click Next
8.Click Next
9. Click Finish

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Data updating is completed.

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Using Amibroker
Let's now take a look at
the user interface:

As you can see the in the

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center we have chart area
in which price chart with
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moving average and
Bollinger bands is plotted
(you can control the
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apperance of built-in
charts from Tools-
>Preferences window).
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In the bottom of the chart

you can see date axis
(marked with red color),
and below scroll bar and
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chart sheets tab control.

Scroll bar can be used to
display past quotes, while
sheet tab allows to view
different chart
pages/sheets.
To the right you can see Y-axis area (marked with blue color) that shows Y-scale and value
labels. Value labels are color fields that display precisely the "last value" of plots. "Last
value" is the value of the indicator (or price) for the last currently displayed (rightmost) bar.
Y-axis area is used also to move/size chart vertically.
Next to the right is a drawing objects toolbar that allows you to choose from available
drawing types (note that only most popular tools are shown here, complete set is available
from Insert menu). A special tool called "Select" (red arrow) is used to select/move/resize
already drawn objects and to select quotes from the chart.

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Chapter 8

Learning Objectives

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 Know the best possible time to take entry and exit

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 Understanding trading strategy and its components

 Learn the method to select trading instrument

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 Learn to average in a profitable way

 Understanding what is money management, importance of money management,

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components of money management

 Learning the way to secure own investment

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 Understanding what is stop loss and its necessity

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 Learning how to use stop loss

 Knowing which is appropriate percentage for own trading system/strategy

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 Learning the way to realize the gains

 Learning different ways to exit while in profit

 Understanding the importance of position sizing

 Learn to minimize risk by diversifying portfolio

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 www.stockbangladesh.com

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Figure 8.7: Trading Strategy | Pullbacks | 1st Pullback after MA Crossover |
DHAKABANK
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Figure 8.8: Trading Strategy | Pullbacks | Pullback after Breakout DHAKABANK

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