03.07.06 technicalanalysis
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Technical analysis focuses on the price movements, trends, and volume of securities rather than their intrinsic value, using historical data and patterns to identify entry and exit points. Common techniques include analyzing charts like candlestick patterns, identifying support and resistance levels, determining upward and downward trends, and using indicators like moving averages, MACD, and stochastic oscillators to identify overbought and oversold conditions. The goal is to predict future price movements based on the collective actions of investors driving supply and demand.
![Stochastic
Theory:
In an uptrend market, closing prices tend to be near the highs
In a downtrend market, closing prices tend to be near the lows
%K line and %D line
%K = 100[(C - L14)/(H14 - L14)]
C = current closing price
L14 = lowest low price during 14-day period
H14 = highest high during 14-day period
%D = %K smoothed over three days](https://image.slidesharecdn.com/03-07-06technicalanalysis-110128111157-phpapp02/85/03-07-06-technicalanalysis-29-320.jpg)
03.07.06 technicalanalysis
- 1. Technical Analysis By Anna Zhang, Calvin Ma, Sunny Kanchanawong
- 2. What is Technical Analysis? Fundamental Analysis: • Valuate company using past performances, financial status, and future growth. • The key is to find undervalued stock Technical Analysis • Intrinsic value of company does not matter; it’s what investors are willing to pay • Observe behaviors within the market • Past occurrences can predict future actions
- 3. What we look at Fundamental Analysis: net income, cash, cash flow, growth etc. Technical Analysis: price and volume. Price : how much it’s worth in the market, its movement over time Volume: the strength of movement. When the price goes up, is it because lots of people start moving into the market? Or is there already lots of people in it?
- 4. Charts – Candlesticks • Started in Japan in 1700s for rice trade • There’s a link between price and supply & demand of rice BUT there’s also the emotions of traders. • Thus, there’s a difference between the price and the value of rice caused by trader emotions. • The candlestick chart analysis measures the market emotions. • Thus, reflect the short-term outlooks
- 6. Charts – Candlesticks • Long body – • Price of stock was in wide range during trading session • Open near low/high and closed near high/low of day • Tells us… bearish or bullish • Small body – • Price of stock varied but… • Open and closed near the same price • Is neutral or indecisive of market
- 7. Charts – Candlesticks • Look at the trend of the market preceding the pattern • Hanging Man – when it is after a rally, it can suggest a beginning of a downward trend. • Lower shadow is about 2-3x as long as body • Little to no upper shadow • Body is at the upper end of range • Black body is more bearish than white
- 8. Charts – Candlesticks • Lucent Technologies • 3 days of stock price rising • Then hanging man appears • Next day, stock price drops over 20% From investopedia.com
- 9. Charts
- 10. Support & Resistance Support: a level where buyers are willing to buy; reenter the market Resistance: More selling than buying, investors believe price too high Resistance Support *There is no definite value of support and resistance level, only a Range of price.*
- 11. Trend • a movement in one direction, until there’s a shift in the force of demand and supply causing the reverse • doesn’t necessary be a smooth line
- 12. Up Trend • Higher highs and higher lows
- 13. Down Trend • lower highs and lower lows
- 14. Neutral Trend • trendless market, have both support and resistance Resistance Support
- 15. Moving Averages (MA) • What’s MA? • It smooth out price data and observe the general direction of movement for a stock. • Types of MA: • 10-day, 20-day, 50-day, 100-day, 200-day • Function: 1.Signal to Buy/Sell 2.Support
- 16. MA – Signal to Buy • Key: Crossover & Movement • ST: 10-day MA crosses 20- day MA Moving Upwards • MT: 10-day MA & 50-day MA; Up • LT: 10-day MA &100-day MA; Up Signal to Buy/Sell Support
- 17. MA – Signal to Sell • ST: 10-day MA crosses 20-day MA Moving Downwards • MT: 10-day MA & 50-day MA; Down • LT: 10-day MA &100-day MA; Down • The Longer the Time Frame, The Stronger the Signal Is Signal to Buy/Sell Support
- 18. MA – Example 1: Google (GOOG) Signal to Buy/Sell Support
- 19. MA – Example 2: Apple (AAPL) Signal to Buy/Sell Support
- 20. MA – Example 3: OXPS Signal to Buy/Sell Support
- 21. MA – Example 4: JSC Tatneft (TNT) Signal to Buy/Sell Support
- 22. MA • What’s MA? • It smooth out price data and observe the general direction of movement for a stock. • Types of MA: • 10-day, 20-day, 50-day, 100-day, 200-day • Function: 1.Signal to Buy/Sell 2.Support Signal to Buy/Sell Support
- 23. MA – Support Example: OXPS •Strong support have been shown at 10 & 20 MA •Seldom fell below 50 MA Signal to Buy/Sell Support
- 24. MA – Testing Support Example: AAPL •Strong support have been shown at 20 MA •Seldom fell below 50 MA •Price fell down the 20 MA test for 50 MA •Price fell down the 50 MA • test for 100 MA Signal to Buy/Sell Support
- 25. Oscillators • Signal the change by comparing rate of change in price action. Compare to the past, has it move very far away? • Usually signal overbought and oversold • be careful: it might just be the beginning of the trend, only use it in trading in neutral market • Examples of oscillators used: -Relative Strength Index (RSI) -Moving Average Convergence Divergence (MACD) -Stochastic etc.
- 26. Relative Strength Index (RSI) Measure the buying and selling forces, range between 0 and 100 RSI = 100 - 100/(1 + RS) RS = Average of x days’ up closes/ Average of x days’ down closes
- 27. Moving Average Convergence Divergence (MACD) MACD line: subtracting 26-day exponential MA from 12- day EMA Signal line: 9-day EMA of MACD What is EMA? - it’s a weighted MA, giving more emphasis to more recent trading days Crossovers: MACD falls under signal line bearish MACD rises above signal line bullish
- 28. MACD
- 29. Stochastic Theory: In an uptrend market, closing prices tend to be near the highs In a downtrend market, closing prices tend to be near the lows %K line and %D line %K = 100[(C - L14)/(H14 - L14)] C = current closing price L14 = lowest low price during 14-day period H14 = highest high during 14-day period %D = %K smoothed over three days
- 30. Stochastic
- 31. Conclusion • When to use technical analysis: • looking for short-term • Indicators are only indicators • When fundamental analysis is more appropriate • Long-term • Or combine both