TECHNICAL ANALYSIS
- 2. Introduction to Technical Analysis • Basics & Definitions • Stock charts & chart types • Major Chart Patterns • Trends / Channels • Support & Resistance • Indicators
- 3. WHAT IS TECHNICAL ANALYSIS • Technical Analysis is a method of forecasting future prices of securities based on information available to us in hand. • Studying stock price graphs and a few momentum oscillators. • They are looking for trends and patterns in data that indicate future price movements. • Do not include Balance Sheets, P&L Accounts (fundamental analysis) • The assumption being that the markets are efficient and all possible price sensitive information is built into the price graph of a security / index. • Exclusive use of historical data.
- 4. BASIC ASSUMPTIONS 1.Market discounts for everything: Technical analysis makes the assumption that everything that has or affects the company will be reflected in the price of the share at any given time. 2.Price moves in a trend: Another assumption of technical analysis is that the future price is likely to move in a trend that has been established rather than move against it. 3.History tends to repeat itself: Technical analysis assumes that price patterns of shares tend to be repetitive which can be used to generate buy or sell signals.
- 5. CHARTING : THE BASIC TOOL • Chartist use bar charts,candlestick,or point and figure chart to look for patterns which may indicate future price movements. • Trend used to forecast future behaviour. The technical analysis time frames shown on charts range from one-minute to monthly, or even yearly, time spans. Popular time frames that technical analysts most frequently examine include: 5-minute chart 15-minute chart Hourly chart 4-hour chart Daily chart
- 6. LINE CHART • Line chart represents any variable over a set period of time. • The line is formed by connecting value of represented variable over the time frame. • Line charts do not provide visual information of the trading range for the individual points such as the high, low and opening prices and closing price. • They depict any variable like volume of a security, index number, price etc .
- 7. Example for Line chart
- 8. POINT AND FIGURE CHART • The point and figure chart is not well known or used by the average investor but it has had a long history of use dating back to the first technical traders. • This type of chart reflects price movements and is not as concerned about time and volume in the formulation of the points. • In order to prepare this type of graph ,the analyst has to decide as to what is a significant price change . • It uses a chart with "X"s and "O"s for predicting financial asset prices. The "X"s are used to indicate rising prices and "O"s to indicate falling prices
- 9. Example for Point and Figure chart
- 10. CANDLESTICK CHART • Similar to the bar chart, the candlestick also has a thin vertical line showing the period's trading range. • Candlesticks rely heavily on the use of colors to explain what has happened during the trading period. There are two color constructs for days up and one for days that the price falls. • When the price of the stock is up and closes above the opening trade, the candlestick will usually be white or clear. If the stock has traded down for the period, then the candlestick will usually be red or black. • If the stock's price has closed above the previous day's close but below the day's open, the candlestick will be black or filled with the color that is used to indicate an up day.
- 12. T H I S I S J A P A N E S E C A N D L E S T I C K ( O P E N , H I G H , L O W , C L O S E ) C H A R T O F S B I F R O M E A R L Y A U G T O D E C 2 0 2 2 Example for Candlestick chart
- 13. Candlestick Patterns Candlestick Charts is with multiple candlesticks forming reversal and continuation patterns. • Bullish Engulfing Pattern • Bearish Engulfing Pattern • Dark Cloud Cover • Doji • Dragonfly Doji • Gravestone Doji • Evening Star • Morning Star • Hammer • Hanging Man • Harami • Inverted Hammer • Piercing Line Pattern • Shooting Star
- 14. Types of Candlesticks DOJI A doji candlestick is a neutral indicator that provides little information. Dojis are formed when the price of a currency pair opens and closes at virtually the same level within the timeframe of the chart on which the Doji occurs They are rare, so they are not reliable for spotting things like price reversals. Doji formations come in three major types: gravestone, long-legged, and dragonfly.
- 15. Patterns in DOJI
- 16. Doji Example
- 17. Basic Technical Tools Trend Lines Moving Averages Price Patterns Indicators
- 18. Trend Lines ➢ There are three basic kinds of trends: • An Up trend where price are generally increasing. • A Down trend where price are generally decreasing. • A Trading Range
- 19. SUPPORT AND RESISTANCE LEVELS •Technical analysts use support and resistance levels to identify price points on a chart where the probabilities favor a pause or reversal of a prevailing trend. •Support occurs where a downtrend is expected to pause due to a concentration of demand. •Resistance occurs where an uptrend is expected to pause temporarily, due to a concentration of supply. •Support and resistance areas can be identified on charts using trendlines and moving averages.
- 20. AMZN Example of Supports AMZN retraces from a monstrous rally to $60 AMZN stops tanking at $60. NOT A COINCIDENCE.
- 22. SELL IF SUPPORT “BREAKS DOWN”, BECAUSE IT SIGNIFIES THAT BUYERS NO LONGER OVERPOWER SELLERS. BREAKDOWNS ARE A BEARISH SELL SIGNAL. Support Breakdowns You should have sold here, at the BREAK DOWN.
- 23. Simple Moving Average ➢ Moving averages are used to identify current trends and trend reversals as well as to set up support and resistance levels. ➢ Moving averages can be used to quickly identify whether a stock is moving in an uptrend or a downtrend depending on the direction of the moving average. ➢ when a moving average is heading upward and the price is above it, the stock is in uptrend. Conversely, a downward sloping moving average with the price below can be used to signal a downtrend.
- 24. Price Patterns Technicians look for many patterns in the historical time series of prices. These pattern are reputed to provide information regarding the size and timing of subsequent price moves.
- 25. HEAD AND SHOULDER • The head-and-shoulders top signals to chart users that a security's price is likely to make a downward move, especially after it breaks below the neckline of the pattern. • Due to this pattern forming mostly at the peaks of upward trends, it is considered to be a trend-reversal pattern, as the security heads down after the pattern's completion. •
- 27. DOUBLE TOPS&BOTTOM • A double bottom appears when a share hits a low, comes higher, again pulls back. • A double bottom appears at the end of a bearish trend and indicates the start of the bullish trend.It describe the drop of stock.
- 28. ROUNDING BOTTOM • The Rounding Bottom is a long-term reversal pattern that is best suited for weekly charts. • It is also referred to as a saucer bottom, and represents a long consolidation period that turns from a bearish bias to a bullish bias.
- 29. THE CUP AND THE HANDLE • The Cup with Handle is a bullish continuation pattern that marks a consolidation period followed by a breakout. • As its name implies, there are two parts to the pattern: the cup and the handle. • The cup forms after an advance and looks like a bowl or rounding bottom.As the cup is completed, a trading range develops on the right hand side and the handle is formed.
- 30. TRIANGLES • A triangle is formed when each succeeding peak is lower than the previous peak • Or each succeeding bottom is higher than the previous bottom • The series of peaks and bottoms are joined by a line which converges and form a shape of triangle.
- 32. Technical Indicators Technical indicators used to generate buy and sell signals. By analzing historical data,technical analyst use indicators to predict future price moments.
- 33. RELATIVE STRENGTH INDEX • Developed J. Welles wilder, the relative strength index (RSI) is a momentum oscillator that measures the speed and change of price movements. • RSI measures the speed and change of price movements. It's intended to evaluate the relative value of a stock, index, or other investment—based on its recent price history. • Rsi = 100 - 100/(1 + rs*) Where RS = average of x days' up closes / average of x days' down closes.
- 35. RSI RSI is used primarily to determine whether an investment is overbought or oversold. It is calculated using the average gain and average loss over a defined period of time In RSI above 70 indicates stock is overbought and a level below 30 indicate oversold(it can range from 0 to 100) RSI can remain in overbought or oversold territory for an extended period of time (weeks or even months). .
- 36. Moving Average Convergance /Divergence The Moving Average Convergence/Divergence indicator is a momentum oscillator primarily used to trade trends. Although it is an oscillator, it is not typically used to identify over bought or oversold conditions. It appears on the chart as two lines which oscillate without boundaries. The crossover of the two lines give trading signals similar to a two moving average system.
- 37. MACD MACD crossing above zero is considered bullish, while crossing below zero is bearish. Secondly, when MACD turns up from below zero it is considered bullish. When it turns down from above zero it is considered bearish.
- 38. • Daily pivot point indicators, which usually also identify several support and resistance levels in addition to the pivot point, are used by many traders to identify price levels for entering or closing out trades. • Pivot point levels often mark significant support or resistance levels or the levels where trading is contained within a range. Technical Indicators – Pivots and Fibonacci Numbers
- 39. • Fibonacci levels are another popular technical analysis tool. Fibonacci was a 12th-century mathematician who developed a series of ratios that is very popular with technical traders. • The primary Fibonacci ratios are 0.24, 0.38, 0.62, and 0.76. These are often expressed as percentages – 23%, 38%, etc. Note that Fibonacci ratios complement other Fibonacci ratios: 24% is the opposite, or remainder, of 76%, and 38% is the opposite, or remainder, of 62%. Fibonacci Retracements
- 40. WEAKNESSES OF TECHNICAL ANALYSIS Experience careful identification and interpretation of pattern requires a lot of experience. Everchanging Chart pattern. Market repeat the pattern but this patterns are constantly changing making it difficult to make money in the long term by using the same trade.
- 41. Conclusion Technical analysis is particular approach to investing that will appeal to some investors not to others. Whereas most investors concentrate on FA of company(turnover,profits,growth etc),TA are concerned with the share price itself. They believe that prices are driven by psychology of investors rather than Fundamentals.By understanding investor psychology ,they can predict which way price will move.