Technical Analysis Presentation.ppt - WIRC-ICAI

Technical Analysis

Introduction Technical analysis is the attempt to forecast stock prices on thebasis of market-derived data. Technicians (also known as quantitative analysts or chartists)usually look at price, volume and psychological indicators overtime. They are looking for trends and patterns in the data that indicatefuture price movements.

Chart Type Charting Stocks Bar Charts and Japanese Candlestick ChartsPoint and Figure ChartsLine Chart Major Chart Patterns Price-based Indicators

Basic Technical Tools Trend Lines Candle stick Moving Averages Price Patterns Indicators

Bar Chart The chart is made up of a series of vertical lines that represent eachdata point. This vertical line represents the high and low for thetrading period, along with the closing price. The close and open arerepresented on the vertical line by a horizontal dash.The opening price on a bar chart is illustrated by the dash that islocated on the left side of the vertical bar. Conversely, the close isrepresented by the dash on the right. Generally, if the left dash(open) is lower than the right dash (close) then the bar will beshaded GREEN, representing an up period for the stock, whichmeans it has gained value.A bar that is colored red signals that the stock has gone down invalue over that period. When this is the case, the dash on the right(close) is lower than the dash on the left (open).

Bar Chart

Candlestick BasicsCandlestick charts are an effectiveway of visualizing price movements.There are two basic candlesticks: Bullish Candle: When the close ishigher than the open (usually greenor white) Bearish Candle: When the close islower than the open (usually red orblack)

Candlestick Parts There are three main parts to a candlestick: Upper Shadow: The vertical line between the high of theday and the close (bullish candle) or open (bearish candle). Real Body: The difference between the open and close;colored portion of the candlestick. Lower Shadow: The vertical line between the low of theday and the open (bullish candle) or close (bearish candle).

Candlestick Patterns Candlestick Charts is with multiple candlesticks formingreversal and continuation patterns. Bullish Engulfing PatternBearish Engulfing PatternDark Cloud CoverDojiDragonfly DojiGravestone DojiEvening StarMorning StarHammer Hanging ManHaramiInverted HammerPiercing Line PatternShooting Star

Doji The open and close are very close together,creating a very small body It represent indecision between the bulls and thebears.

Long-Legged Doji A long-legged Doji is the same asDoji, except the upper and lowershadows are much longer than theregular Doji formation.

Example of Long-Legged Doji

Dragonfly Doji

Dragonfly Doji The Dragonfly Doji is asignificant bullish reversalcandlestick pattern that mainlyoccurs at the bottom ofdowntrends. The most important part of theDragonfly Doji is the longlower shadow.

Example of Dragonfly Doji

Gravestone Doji The Gravestone Doji is a significantbearish reversal candlestick patternthat mainly occur at the top ofuptrends. The most important thing about theGravestone Doji is its long uppershadow.

Example of Gravestone Doji

Hammer

Hammer The Hammer candlestick formationis a significant bullish reversalcandlestick pattern that mainlyoccur at the bottom of downtrends. It has a long lower shadow twice thelength of the upper body.

Classic Example of Hammer

Hanging Man

Hanging Man The Hanging Man candlestickformation is a bearish sign. Thispattern occur mainly at the top ofuptrends and is a warning of apotential reversal downward. There is a long lower shadow,which should be at least twice thelength of the real body.

Classic Example of Hanging Man

Shooting Star

Shooting Star The Shooting Star candlestickformation is a significant bearishreversal candlestick pattern thatmainly occur at the top ofuptrends. There is a long upper shadow,generally defined as at least twicethe length of the real body.

Classic Example of Shooting Star

Piercing Pattern The Piercing Pattern is a bullishcandlestick reversal pattern, There are twocomponents of a Piercing Patternformation: Bearish Candle(day 1) Bullish Candle (day 2) Piercing pattern will often end a minordowntrend. Green candle will close above the midpointand opening of the bearish candle ,i.e.more than halfway up the Red candle.

Piercing Pattern

Engulfing Patterns Engulfing patterns have one bearish and one bullish candle. The second candle must fully cover the first candle. Bullish or bearish, according to the second candle.

Bearish Engulfing Patterns

Bullish Engulfing Patterns

Morning Star

Morning Star It is a bullish candlestick pattern thatconsist of three candles. The first candle is a large bearishcandle located within a defineddowntrend. The second candle is a small bodiedcandle (bullish or bearish)that closesbelow the first red bar. The last candle is a large bullishcandle that open above the middlecandle and close near the middle ofthe first candle.

Classic Example of Morning Star

Evening Star

Evening Star An evening star is a bearishcandlestick pattern consisting ofthree candles. The first candle is a large whitebullish candlestick located withan uptrend. The middle one is a smallbodied candle(bullish or bearish)that close above the first candle. The last candle is a largebearish candle that open belowthe second candle and closesnear the first candle’s center.

Classic Example of Evening Star

Bearish Harami A trend indicated by a largecandlestick followed by a muchsmaller candlestick with thatbody is located within the verticalrange of the larger candle's body. Such a pattern is an indicationthat the previous upward trend iscoming to an end.

Bearish HaramiBearish Harami

Bullish Harami A candlestick chart pattern inwhich a large candlestick isfollowed by a smaller candlestickwhose body is located within thevertical range of the larger body. In terms of candlestick colors, thebullish harami is a downtrend ofnegative-colored(RED)candlesticks engulfing a smallpositive (GREEN) candlestick,giving a sign of a reversal of thedownward trend.

Bullish Harami

Three Black Crows It is a bearish candlestickpattern that is used to thereversal of the current uptrend. This pattern consists of threeconsecutivelong-bodiedcandlesticks that have closedlower than the previous daywith each sessions openingoccur within the body of theprevious candle.

Three White Soldiers A bullish candlestick patternthat is used to predict thereversalofthecurrentdowntrend. This pattern consists of threeconsecutivelong-bodiedcandlesticks that have closedhigher than the previous day,with each session's openoccurring within the body ofthe previous candle.

Dark Cloud Cover A pattern where a black candlestickfollows a long white candlestick. It canbe an indication of a future bearishtrend. Essentially, the large black candle isforming a "dark cloud" over thepreceding bullish trend.The dark cloud must have a closingprice that is: within the price range of theprevious day.But below the mid-point betweenopen and closing prices of theprevious day.

Dark Cloud Cover In candlestick charting, a pattern where a black candlestick follows a longwhite candlestick. It can be an indication of a future bearish trend.

Support & Resistance Support and resistance linesindicate likely end of trends.Resistance results from theinability to surpass prior high.Support results from theinability to break prior low.If support has broken than thatSupportlevel become the resistance,and vice-versa.BreakoutResistance

Historical Support & Resistance

Tea Break

Trend Lines There are three basic kindsof trends: An Up trend whereprice are generallyincreasing.A Down trend whereprice are generallydecreasing.A Trading Range.

Simple Moving Averages Moving averages are used to identify current trends and trend reversals aswell as to set up support and resistance levels. Moving averages can be used to quickly identify whether a stock is movingin an uptrend or a downtrend depending on the direction of the movingaverage. when a moving average is heading upward and the price is above it,the stock is in uptrend. Conversely, a downward sloping moving averagewith the price below can be used to signal a downtrend. Another method of determining momentum is to look at the order of a pairof moving averages. When a short-term average is above a longer-termaverage, the trend is up. On the other hand, a long-term average above ashorter-term average signals a downward movement in the trend.Conti

Simple Moving Averages Moving averages are a powerful tool for analyzing the trend in a stock. Theyprovide useful support and resistance points and are very easy to use. Themost common time frames that are used when creating moving averages arethe 200-day, 100-day, 50-day, 20-day and 10-day. 200-days average is a good measure of trading year, a 100-day average forhalf a year, a 50-day average for quarter, a 20-day average for month and10-day average for two weeks.

Price & Moving Average Crossover Moving average trend reversals are formed in two main ways:When the price moves through a moving average and when it movesthrough moving average crossovers. The first common signal is when theprice moves through an important moving average. For example, when theprice of a security that was in an uptrend falls below a 50-period movingaverage, it is a sign that the uptrend may be reversing.

Moving Averages Crossover The other signal of a trend reversal is when one moving average crossesthrough another. For example, if the 50-day moving average crosses abovethe 200-day moving average, it is a positive sign that the price will start toincrease.

Head and ShouldersH&S Top This formation is characterizedby two small peaks on eitherside of a larger peak.HeadRight ShoulderLeft ShoulderNeckline This is a reversal pattern,meaning that it signifies achange in the trend.H&S BottomNecklineLeft ShoulderRight ShoulderHead

Example of Head & ShoulderSell SignalMinimum Target PriceBased on measurement rule

Double Top & Double Bottom These formations are similar to the H&Sformations, but there is no head.These are reversal patterns with the samemeasuring implications as the H&S.The Double Top is a frequent priceformation at the end of a bull market. Itappears as two consecutive peaks ofapproximately the same price on a priceversus-time chart of a market.The Double Bottom describes as the drop ofa stock a rebound, another drop to the samelevel as the original drop, and finally anotherrebound.Double TopTargetTargetDouble Bottom

Example of Double Bottom

Example of Double Top

Triangles Triangles arecontinuation formations.Ascending Three types: al Typically, price shouldgive break out near theapex,andtypicallybreakout would be in thedirection of the priortrend.Descending

Rounding Top & Bottom Rounding formations are characterized by aslow reversal of trend. The Rounding Bottom is a long-termreversal pattern that is best suited forweekly charts. It is also referred to as asaucer bottom, and represents a longconsolidation period that turns from abearish bias to a bullish bias. A Rounding Top may form at the end of anextended upward trend and indicates areversal in the long-term price movement.The pattern can develop over several weeks,months or even years, and is considered arare occurrence by many traders.RoundingBottomRounding Top

Example of Rounding Bottom

Example of Rounding Top

Broadening Formation These formations are likereverse triangles. These formations usuallysignal a reversal of thetrend.Broadening BottomsBroadening Tops

Example of Descending Triangleand Trading RangeNov to MarTrading rangeDescendingtriangles

Technical Indicators There are, literally, hundreds of technical indicators used togenerate buy and sell signals. We will look at few of the major indicators: Moving Average Convergence/Divergence (MACD) Relative Strength Index (RSI) Bollinger Bands