Demystify Technical Analysis

Techncial Analysis
Agenda

 Orientation
• Introduction to the course.
• Rules and Regulations.

• Expectation etc.
 Introduction to Technical Analysis.
• What is Fundamental Analysis.
• What is Technical Analysis,
• Comparison between Technical and Fundamental Analysis.

 Some Basic Concepts.

• Line Chart
• Bar Chart
• Candlestick Chart

 Trends
• Up Trend
• Down Trend
• Side Ways Trend

 Trend lines and Properties.

• What is Valid Trend lines and Properties

 Trading Technique for Trend lines.

2 Technical Analysis
Human Emotions

3 Technical Analysis
Your forecasting toolkit

A method of forecasting based

Fundamental analysis
on basic economic, political and
environmental factors
A method of predicting price
Technical
movements and future market
trends byanalysis
studying charts of
past market action, price,
volumes and open interest.
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Fundamentally Strong Company Technically Strong Company.

5 Technical Analysis
Fundamentally Strong Company Technically Strong Company.

6 Technical Analysis
Basics

 A good graphics package with good data behind it.

 Set aside some time every day to flick through the

charts of what you trade.

 Don’t get fixated on day-to-day, look at the

weekly, monthly and yearly charts.

 Don’t get so focused on the near-term action that

you lose sight of the bigger picture.

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Principles of Technical analysis

 The current price

discounts everything

 Patterns exist

 History repeats itself

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The current price discounts everything

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History repeats itself

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History repeats itself

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Strengths

 Can be used on almost any

instrument

 Can be used to analyse data over a

wide range of time periods

 There are many charting tools and

techniques

 The basic principle of charting is

easy to understand

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Technical Analysis would work almost on all Instruments

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Weaknesses

 It is subjective ie. open to

individual interpretation

 The past does not necessarily

repeat itself

 It is based on probability not

certainty

 The data used must be timely and

accurate

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 Trends
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Basic Concepts of Trend

 There are three trends

UP
DOWN
SIDEWAYS

 There are three decisions

GO LONG
GO SHORT
STAY OUT OF THE MARKET

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“Don’t buck the trend, because the trend is your friend”

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Up Trend

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Up Trend

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UPTREND

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Down Trend

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Down Trend

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Sideways Market

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Sideways Market

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Short-term and Longer-term trends

 A trend has three classifications

MAJOR
INTERMEDIATE
NEAR-TERM

 Broadly three time horizons

LONGER THAN A YEAR
ONE TO THREE MONTHS
ONE WEEK TO ONE MONTH

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Short-term and Longer-term trends

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Three Stages of a Trend

Bull Market Bear Market

Distribution

Excess

Big Move Big Move

Despair
Accumulation

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 Basic types
of charts
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Chart types

 Line

 Bar

 Candlestick

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Line charts
 The line chart is the simplest form of chart joining a series of points for
instrument data on the vertical axis (Y-axis) and a timescale on the
horizontal axis (X-axis).
 Line charts are not frequently used today.

 Typically Bid, Ask, High, Low or Close prices are used for the vertical axis
and timescales used can vary from tick (every price plotted consecutively)
to hourly, daily and weekly.

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31 Technical Analysis
Bar Charts
High

Open

Close

Low
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Candlestick

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Very simple signals

Uptend Downtrend
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Reversal days

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The two-day reversal

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Properties of Trend Line

 The greater the number of touches the more

important the trend line becomes.

 The angle of Trendline

 Extension of Trend line.

 Trendline with Chart patterns

 Spacing of the two points

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Number of Touches

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Extension of Trendline

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Incorrect Angle

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Trendline with Chart Patterns

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Spacing between 2 points

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Trading Trendlines

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Trading the Trendline

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 End of Session 1

45 Technical Analysis
Session 2

 Identifying good Support and Resistance Level

• What is good Support ?
• What is good Resistance ?
• Properties of good Support and Resistance .

 Fibonacci Number and Ratio.

• Fibonacci Numbers and Ratio
• Retracement
• Extension

 Identifying Chart Patterns.

• Double Top
• Double Bottom
• Tripple Top
• Tripple Bottom
• Head and Shoulder and Inverted Head and Shoulder Pattern.
• Triangles (Ascending , Descending Symmetrical Triangles)
• Cup and Handle Pattern
• Wedges and Flags and Pennants

 Candelstick Patterns
• Doji
• Bullish and Bearish Engulfing
• Hanging Man , Hammer
• Morning Star evening star
• The Dark Cloud Cover
• Island Reversal
• The Kicker

46 Technical Analysis