Introduction To Technical Analysis
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This document provides an introduction to technical analysis, emphasizing its focus on price and volume for forecasting stock prices. Key concepts discussed include various chart types, market trends, support and resistance, and technical indicators such as moving averages and RSI. The presentation aims to convince attendees of the efficacy of technical analysis in stock trading.
Introduction To Technical Analysis
- 1. Introduction to Technical Analysis
- 2. What to Expect? Not even T of Technical Analysis (3 Hours is too less a time to expect anything w.r.t Technical Analysis, there’s too much out there…) Expect just an introduction to what is technical analysis Get yourself convinced by end of the presentation that technical analysis is good enough to buy and sell stocks
- 3. What Is Technical Analysis in two words?
- 5. What wiki says? Technical analysis is a security analysis discipline for forecasting the future direction of prices through the study of past market data, primarily price and volume.
- 6. Different Kind of Charts used: Line charts Bar charts Candlestics
- 7. Line Charts
- 8. Bar Charts
- 9. Candlesticks
- 10. An Example…
- 11. How to use Candle Sticks?
- 12. Is That all?? No
- 13. Dow Theory Market Discounts everything The 3 Trends -> Primary Trends -> Secondary Trends -> Minor Trends
- 14. Primary Trends and Secondary Trends
- 15. Primary Trends : They run for years Secondary Trends : Few weeks to months 1/3 , 50% , 2/3 retracements Minor Trends : Day to day moments which are of not importance to dow theory. Continued…
- 16. Continued… The Bull market -> Accumulation -> Public Participation phase -> Excess The Bear Market -> Distribution -> Public Participation phase -> Panic
- 17. Continued… The 2 Averages must confirm -> Industrial Average -> Rail Average Volumes goes with the trend
- 18. Continued… A trend be assumed to continue in effect until such time as its reversal has been definitely signaled
- 19. Some Examples…
- 31. Role Reversals Support becomes Resistance and vise versa
- 33. Chart Patterns Reversal Patterns Ex: Head and Shoulders, Rounding tops and bottoms, Triangles, Rectangles, Double and triple tops and bottoms, diamonds, wedges etc Continuation Patterns Pennants and flags etc
- 35. Double tops and bottoms
- 36. Triangles
- 38. Some Examples…
- 39. Bullish Flag
- 40. Falling wedge
- 42. Head and Shoulders breakout
- 43. Head and Shoulder formation
- 45. Averages Simple moving average (20 DMA, 50 DMA, 100DMA) Exponential moving average(20 EMA, 50 EMA) Triangular moving average Volume adjusted moving average Weighted moving average
- 46. Simple Moving Average DAY PRICE SUM OF 3 DAYS 3 rd COLUMN / 3 1 10 2 11 3 12 33 11 4 13 36 12 5 14 39 13 6 15 42 14 7 16 45 15 8 17 48 16 9 18 51 17 10 19 54 18
- 47. Exponential Moving Average Exponential Percentage = 2 ---------------------------- Time Periods + 1 Ex: for 3 day EMA, E % = 2/(3 + 1) E % = 2/4 = 0.5
- 48. 3 DAY EMA A B C D E DAY PRICE PRICE * 0.5 YESTERDAY E * 0.5 C + D 1 10 10.000 2 11 5.5 5 10.500 3 12 6 5.25 11.250 4 13 6.5 5.625 12.125 5 14 7 6.062 13.062 6 15 7.5 6.531 14.031 7 16 8 7.015 15.015
- 49. Moving Averages as Support
- 52. Use of major moving average as support
- 55. Indicators Leading Indicators Ex: RSI, CCI, Stochastic, etc Lagging Indicators Ex: MACD, moving averages etc
- 56. Bollinger Bands Shown in 3 bands Middle Band = SMA Upper Band = Middle band + 2 Standard Deviations Lower Band = Middle band – 2 Standard Deviations
- 57. RSI Relative Strength Index Usage -> Tops and Bottoms (70 and 30) -> Chart Formations ->Support and Resistance -> Divergance
- 58. Calculation 100 - (100 / (1 + (U/D))) U -> Upward Price Change D -> Downward Price Change Ex : 3 day RSI
- 59. Continued… A B C D E Closing Price Upward Price Change Smoothed B Down word Price Change Smoothed D 10 11 1 0 9 0 2 13 4 1.66 0 0.66 10 0 1.33 3 1.33 14 4 2.66 0 1 C E F G H I = RSI C E C/F F + 1 100/G 100 - H 1.66 0.66 2.51 3.51 28.5 71.5 1.33 1.33 1 2 50 50 2.66 1 2.66 3.66 27.3 72.7
- 60. Some Examples…
- 64. MACD Moving Average Convergence and Divergence Calculation 12 EMA – 16 EMA Usage -> Crossovers -> Overbought/Oversold -> Divergence
- 65. Examples…
- 67. Other Technical Indicators Absolute Breadth Index Accumulation/Distribution Line Advance/Decline Line and Ratio Arms Index (TRIN) AROON Chalkin Oscillator CCI KST OBV (There are 1000s of indicators )
- 68. Pivot Points PP = (H + L + C) / 3 R1 = (2*PP) - L R2 = PP + (H - L) R3 = H + 2*(PP-L) S1 = (2*PP) - H S2 = PP - (H - L) S3 = L - 2*(H - PP)
- 69. Other Important Things not Discussed Elliott Wave Theory Fibonacci Studies Gann angles
- 70. Q&A
- 71. Thank You