Technical Analysis Presentation[1]

8/6/2019 Technical Analysis Presentation[1]

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TECHNICAL ANALYSIS



Definition : Technical Analysis

³Technical Analysis is the organized

and systematic study of a pictorial

representation (chart) of the past price actions

of a particular item with a view to ascertaining

its expected future behavior´.Three premises on which Technical Analysis

builds up:

Market Action Discounts Everything

Prices Move in Trends

History Repeats Itself



Basic Tenets of Dow Theory

Averages Discount Everything

Markets has Three(3) Trends

(Bull,Bear,Sideways)Volume Must Confirm The Trend

A Trend is in Effect until it Gives

Definite Signals of Reversal



Chart Construction

The X-axis on a chart plots the periods for which prices

are plotted and Y-axis plots the value or the price of theshare. This could range from hours to years .we canhave charts as well as hourly, daily ,weekly quarterly,yearly charts based on the data.

Day Traders trade on basis of Intra-Day charts as theyare more interested in the immediate movement in stockprices. Ideally Day.

There are Three types of Charts which are commonly

used by ChartistsLine Chart

Bar Chart

Candlestick Chart



The 4 quotes are Normally in order of (Example)

Open (Rs. 200)High (Rs.225)

Low (Rs.175)

Close (Rs.180)High

Open

Close

Low

High

Open

Close

Low

BAR CHART CANDLESTICK CHART



Trend AnalysisUpTrend:

In uptrend the share prices move in upward direction makingnew highs in the process. Hence the best indication of up

trend is the prices making a higher top ±higher bottom . In

such situation one should try to buy on every fall

Downtrend:

The share prices move in downward direction making new

lows in the process. Hence the best indication of downtrend is

the prices making a lower top ±lower bottom . In such situation

one should try to sell on every rise.

Sideways Trend:

The share prices move in a narrow band ,neither going upward

nor downward .one should wait for a clearcut breakout and nottrade in Sideways Trend as there is not much movement.

Mixed Trend:

The share prices move in both directions going upwards as

well as downwards more than once in a trading day This type

of day usually sees the combination of all the trends and that

too more than once



UPWARD TREND

DOWNWARD TREND

Sideways Trend

Sideways to

Uptrend

Sideways to Downtrend



MIXED TREND



DOUBLE TOPS DOUBLE BOTTOMS

BREAKOUT FOR DOWNTREND

BREAKOUT FOR UPTREND

DOUBLE TOPS

DOUBLE BOTTOMS



TRIPLE TOPS &TRIPLE BOTTOM

TRIP

LE TOP

TRIP

LE BOTTOM

BREAKOUT FOR DOWN TREND

BREAKOUT FOR UPTREND



ROUNDING TOP /INVERSE SAUCER

PATTERN

ROUNDING TOP



SUPPORT AND RESISTANCE

SUPPORT LEVEL

RESISTANCE LEVEL

Support line once violated acts as a resistance line

for any up move and vice-versa



B AR REVERSAL

UPWARD BAR REVERSAL DOWNWARD BAR REVERSAL

SIMPLE PERFECT SIMPLE PERFECT

Close

higher

than

previous

day¶s

close

Lower lowLower low

Close higher

than previousday¶s close

and high

Higher

high

Close lower

than the

previous

day¶s close

Higher high

Close lower

than previous

days close and

low



Head and Shoulder Pattern

SHOULDER (Left)

HEAD

SHOULDER (Right)

NECKLINE

Pull Back



Inverse Head and Shoulder Pattern

Penetration of the Neckline

Neckline

SHOULDER( Left) SHOULDER (Right)

HEAD



Ascending or Descending Triangle

Lower trend line is rising and the upper trendline is flat

Lower trend line is flat upper trendline is declining



WEDGES

BU Y

SELL



MOVING AVERAGES

A moving average is an indicator that showsthe average value of a security¶s price over a

period of time .In technical analysis it is

calculated on a dynamic (day to day basis)

and the average value change in the price of security.

Commonly used Moving Averages are

Simple Moving Average (SMA)

Weighted Moving Averages (WMA)Exponential Moving Averages (EMA)



USING MOVING AVERAGES

Identifying trend reversal by price and Moving

Average crossover.

Identifying trends by crossover of two Moving

Averages.

Short period M A Early entry or exit from the

trend BUT more whipsaws and higher

incidence of false loss making trades . More

transaction costs .Long period MA Late entry and exit from the

trend BUT lesser whipsaws and lower

transaction costs



MOVING AVERAGES

Two different MA¶s of two different periods are

used and signals are generated by

crossovers/supports /resistances between

them.

Time gap between the periods should be

sufficiently large (enough to represent one as

short term ,the second as medium /long term)



BASIC SIGNALS IN RESPECT OF MOVING

AVERAGES (FOR BU Y SIGNAL)

3 MA should be almost parallel and equidistance and turningupwards

The 3 MA should be in ascending order i.e. lowest at the bottom andhighest at the top

The first signal to buy is when the Short term MA line cuts

the Medium term MA line from the bottom

The rise in the prices in this area should be accompanied

by the substantial rise in volumes

The second signal to buy (confirmatory )is when the Short term MA

cuts the Long term MA which confirms that thetrend is going to continue.

One should stay long in the stock till the Short term MA line is abovethe long term MA line and book profits based on the momentum of the stock as well as the overall market situation



MA¶s used-60/180/300

300 Minutes

180 Minutes

60 Minutes SELL I

SELL II



INDICATORS

TWO TYPES

MOMEMTUM : Uses the principle of divergence and confirmation

OSCILLATORS : Uses the principle of over bought and over sold signals

Indicators only read the underlyingpower and velocity in the trend notthe trend.



Commonly used Indicators

MOMEMTUM

Rate of Change(ROC)12E9

Moving Average Convergence AndDivergence (MACD) 9 24 E 9

OSCILLATORS

Relative Strength Index (RSI) 14E9

STOCHASTICS (% K5,%D3 E3)



STOCHASTICS(%K5 ,%D3,E3)(IN 15 /30 MINS CHART)

OVER

BOUGHT

OVER

SOLD

SELL SELL

BU YBU Y

OSCILLATOR LINE TRIGGER LINE



NEGATIVE DIVERGENCE

� Price chart making HIGHER TOP

� Oscillator making a LOWER TOP

� Price Chart and Oscillator diverging AWAY from each other at a

significant high.



SIGNALS B ASED ON OSCILLATORS

SELL the overbought zone when there is negativedivergence between the price and the oscillator

or SELL in the overbought zone when the oscillator line firstcuts the trigger line from above

BU Y the oversold zone when there is positive divergencebetween the price and the oscillator.

or BU Y in the overbought zone when the oscillator line firstcuts the trigger line from below

Oscillators gives early signals but it also gives manywhipsaws (false signal). To avoid this it should be usedalong with patterns and other indicators and not inisolation.



PRICE BREAKOUTSPrice Breakout indicate sharp Price Movement with aGreat Momentum at That Point Of Time It Happens DueTo Sudden Change In Demand And Supply Situation ata Particular Level

Breakout have to be supported by high volumes and are

normally good indication of the direction as well as thespeed at which the price moves

Breakout implies that the demand and supply situationat that a given point of time changes drastically and thedemand increases incase of an upper breakout and

supply increases in case of downward breakout

In a trended market the breakout indicate continuationof a move as well as a reversal of a move depending onwhere they occur.



BULL TRAP

Bull trap is a situation when lot of buying comes

In and the market looks very strong and poised to

take off further in upward direction.



BEAR TRAP

A bear trap's a situation where in a lot of bear become

active on sensing a further fall and before they realize

they are swept off their feet by bulls they do not get a

chance to exit their short position .



STOP LOSS AND ITS

IMPORTANCE

Stop loss means that one should cutoff or

square off the deal if it goes against him .In

case a day Trader fails to spot a change of

trend ,a small stop loss can save him from big

loss Stop loss is the life line for day trader ,andfor trader to be successful in day trading

timely execution of stop loss is a must

A day trader who has a long position has tokeep his stop ±loss at a price below the

purchase price and the trader having a short

position should have a stop loss above a price

higher than his sell price.



ABOVE THE TOP OR BELOW THE

BOTTOM OF A MOVE

STOP LOSS

SELL

STOP LOSS

BU Y



ABOVE OR BELOW THE TRENDLINE

IN CASE OF A BREAKOUT

STOP LOSS

SELL

STOP LOSS



CONCEPT OF TRAILING STOP-

LOSSES(IN AN UPWARD MOVE)

Original S-L

1st Trailing S-L

2nd Trailing S-L

3rd Trailing S-L

4th Trailing S-L



CONCEPT OF TRAILING STOP-

LOSSES(IN AN DOWNWARD MOVE)Original S-L

1st Trailing S-L

2ndTrailing S-L

3rd Trailing S-L

4th Trailing S-L



STOP AND REVERSE

TECHNIQUE (SAR)This Technique is Highly useful when in a trended market,there is a change of trend and one is currently against thetrend.

If one is long in a bullish market and if lot of selling pressurecomes and if one is convinced that this may be change of a

trend ;one should not only square the existing long positionbut should go short.

In a bearish market if one is short and a lot of buying pressurecomes and if one is convinced that this may be change of atrend ;one should not only square of the existing short

position but should go long

Normally market tops and bottoms act as good Resistance andSupport level and on breach of support and resistance oneneeds to use SAR technique immediately



CONCEPT OF AVERAGING

The idea of averaging is to bring down the purchase price incase of long position and pull up the sale price in case of ashort position

One should average from long or short position only uptoaround 75% to 80% of the stop loss levels in order to get thebenefit of zigzag movements of the share prices

One way to average is to buy or sell equal quantity on everyfall or rise

The other way is to start with a small quantity and double onevery fall or rise

This helps to get the average price higher in case of shortposition and lower in case of long position

Under no circumstances one should average in case the stop-loss levels have been reached (its better to get the stop losstriggered)



J APNESE CANDLESTICKS

JAPNESE CANDLESTICKS ANALYSIS

CANDLE STICK CHARTS VERSUS BAR CHART

STANDARD BAR CHARTS

CANDLESTICKS CHARTS



CANDLESTICKS CHARTSCONSTRUCTION

BODY

SHADOWS




BEAR DAY

OPEN

CLOSE

BODY




BULL DAY

OPEN

BODY

CLOSE



CONSTRUCTION

CLOSE

OPEN

DOJI



TYPES OF DAYS

BIG DAYS

SMALL DAYS



TYPES OF DAYS

SHAVEN HEADS

OPEN MORUBOZU CLOSING MORUBOZU



TYPES OF DAYS

Spinning Tops (koma)



Grave Stone Doji (hakaishi)

Construction: long upper shadow closing is same asopening

Psychology: it reflects that the bulls dominated the

session after the opening but in mid session

the bears became active and pushed the

prices down

Implication: Bearish if appears after the rally



Dragon Fly Doji (tonbo)

Construction: no upper shadow long lower shadow closing is same as

opening

Psychology: it reflects sellers (bears) dominated the market initially

but after mid session the bulls forced the prices up and

ultimately closed at the opening level



Long Legged Doji (hakaishi)

Constriction: long upper shadow long lower shadow closing is same

as opening

Psychology: It reflects indecision amongst buyers (bulls) sellers(bears)



HAMMER (tonkachi)

Scenarios and Psychology:

The market has been in a downtrend and there is a bearish

sentiment all around somehow the sell off does not take place ,the

bears feel it uneasy as the recovery is swift and by the end of the

session the prices recover to close near the opening levels if the

candle is bullish it is better confirmation is required with an open

higher and higher close would be ideal .



HANGING MAN (kubitsuri)

Scenarios and Psychology

The market has been in an up trend and there is a bullish

sentiment all around .But weakness seeps in. Prices do not

remain firm ,bulls feel uneasy and profit booking takes. Prices are

pushed to lower levels by the end of the session the prices

recover to close near the opening levels if the candle is bearish it

is better .



Engulfing Bullish Pattern (tsutsumi)

A down trend is in place when a small black body occurs and prices

remain subdued and close at a lower end with low volumes .The next

day prices open with a downward gap and huge buying emerges

pushing the price up This makes the bears nervous and they book

profits fuelling a rally .At close the prices are above the previous

days high if the next day the prices are firm the trend can reverse



Bullish Harami (harami)

Down trend is in place for sometime A long black candle withaverage volumes is formed The next day the prices openhigher with a gap .Some bears ,taken by surprise cut their shorts causing the price to rise further .Volume is high whichsuggest short covering Confirmation of reversal on the nextday will be proof the trend reversal



Bearish Harami (harami)

An uptrend is in place for sometime with long white candle

and huge volumes .The next day the prices open lower andstay in a smaller range closing lower but within the previousdays real body. This is the first signal for traders to bewatchful specially if the volumes are low as it appears thatthe trend is about to change.



Piercing Line (kirikomi)

Scenario:

A long black body is formed in a downtrend which maintains bearish

sentiments .An open the next day with a downward gap heightens thebearish scenario but the market rallies all day and closes above themidpoint of the previous days real body (ideal > 60%) with highvolumes .This market action causes nervousness amongst the bearsand a reversal is around the corner.



Dark Cloud Cover

Scenario

A long white candlestick is formed in an up trend the next day

prices open with an upside gap indicating a strong opening Prices

may or may not go higher but at a certain level nervousness steepsin followed by profit booking This leads to prices closing well into

the real body of the previous day A reversal is on the cards If prices

open below the close and remain that way for the rest of the day

,the bears move into action to join the party



Harami Cross

Psychology behind harami cross is the same as harami patterna trend is in place for sometime and all of sudden the pricesare confined within the limits of the previous days real body.To make the matters worse the prices close at the same levelas the opening volume is dry (low) reflecting indecisionamongst both the bulls and the bears reversal is on the cards



Morning Star

Scenario

A downtrend has been in place confirming the power of the bears who

are in total control leaving no doubt that this action may continuefurther .The next day prices gap lower on the open ,trade within thesmall range and closes near the open (this signals a weakening bear grip). The third day sees prices open with an upper gap and closehigher .The bulls gear into action seeing the opportunity.



Evening Star

An up trend is in place which is assisted by a long white

candle There is little doubt about the up trend to continue .Thenext day prices gap higher and move in narrow range only to

close near the opening level .this small body shows the

nervousness amongst the bulls and their inability to drive the

prices up further .This also reflects indecision among the

players The next day prices are pushed further down



Upside gap two crows

Scenario:

A white body occurs in an up trend The second day prices openwith an upward gap and decline to close below the open to form theblack day but higher than the first days High/close This is followedby a higher open and then drop to a close lower then the previousdays close though this close may be higher than the first day openthe bullish sentiment has definitely taken a hit



TOOLS FOR DAY TRADING

TECHNICAL SYSTEM

Support/Resistance based on Trendlines\Significant

highs and lows.

Breakouts supported by strong Volumes

A signal based on moving Averages

A signal based on oscillator

Daily Trend as well as Intra-Day Trend of stock as well

as overall Trend of the market



FINANCIAL ASPECT IN DAY TRADING

Execution Of A Trade

Stock To Choose

Quantity To Trade

Risk To Reward RatioTotal Traded Volume In Stock

Volatility Of A Stock

Maximum Loss Per DayMinimum Loss Per Day



MENTAL ASPECTS IN DAY TRADING

GREED

FEAR

BOREDOM

OVERCONFIDENCE

HERD MENTALITYMONOTONY

CHANGE

EGOISM

ANGER

FATIGUE

FREEZ MENTALITY

HOPE

MIND TRAPS



MIND TRAPS

COMPULSIVE TRADING

FREEZ MENTALITY

EGO CLASHESMENTAL FATIGUE



CONDITIONING THE MIND TO

OVERCOME MIND TRAPS

Sit In A Totally Relaxed Posture

Close Your Eyes And Relax Your Whole

Body

Go In A Deeper State Of Relaxation

Give Auto Suggestions To Overcome

Mind Traps



EXPRIENCES AND QUOTES OF



³ A Trader Must Create A System Or Be Enslaved

By Another Man¶s System´

- William Blake

³If You Can¶t Take A Small Loss ,Sooner Of Later You Will Take The Mother Of All The Losses´

- Jack Schwager

³It Makes Better Sense To Make Mistakes On Your Own In

Trading Rather Than Pay For Someone¶s Else µs «At

Least You Get To Learn Something´

- Burton Malkiel

EXPRIENCES AND QUOTES OF

SOME TRADERS

GOLDEN RULES OF DAY



GOLDEN RULES OF DAY

TRADING

Trend is your Friend

Ride on Profits & Cut Losses

Do not be too GreedyTake Trading decisions yourself

Always be Flexible

Do not be Compulsive Trader Make use of all Trading Tools

Technical Analysis Presentation[1]

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