technical analysis pres

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Foundations of TechnicalAnalysis

´ Since all human actions obey laws, as

fixed as those of geometry, psychology

should be studied in geometrical form,and with mathematical objectivityµ

Spinoza Spinoza




Three premises on which Technical Analysis

builds up

� Market action discounts everything

� Prices move in trends

� History repeats itself




Definition of Technical Analysis

´ Technical 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 behaviorµ.




DO CHARTS TELL ANYTHING / EVERYTHING




Basic tenets of theDow Theory

1) Averages discount everything

2)M

arket has three (3) trends3) Markets go through three (3) phases

4) Averages must confirm each other

5) Volume must confirm the trend

6) A trend is in effect until it gives definite signals of

reversal




Technical Analysis addresses the simple question

´WHEN TO DOWHA T ?




´ Investors must keep in mind that there is

a difference between a good company and

a good stockµ




Types of charts

1) Bar chart

2) Line or Close chart

3) Japanese Candlestick chart




EXAMPLE OF A BAR CHART




Charting techniques

�Arithmetic scale

�Log scale



Price Patterns� Price movement of listed securities take shape of recognizable patterns over a period of time.

� T

hese patterns have independent interpretationstowards the direction and absolute movement of the price.

�Patterns reflect accumulation or distribution and

thus reflect reversal or continuation of pricetrends.



� Mostly occurs as a reversal pattern.

� Volumes dry up during the formation of a H &

S top / bottom.

� Volumes increase as we reach a breakout / may

not increase for a breakdown.

Price Patterns : Head &Shoulder



Price Patterns : Head &Shoulder - examplesGMR Daily chart



Price Patterns : Head &Shoulder - examplesIDFC Daily chart



Price Patterns : Head &Shoulder - examplesIndusind weekly chart



Price Patterns : Head &Shoulder - examplesKotak Bank daily chart



� Mostly occurs as a long term reversal pattern.

� Volumes dry up during the rounding formation

but breakout happen with unprecedented surgein volumes

� Occur over a long period and to be seen on

arithmetic scale.

� Reflect long term change in fundamental /

strong operator activity.

Price Patterns :Cup /Rounding Formation



Price Patterns :Cup /Rounding Formation Ex.SA IL Monthly chart



Price Patterns :Cup /Rounding Formation Ex.Taneja A ero Monthly chart



Price Patterns :Cup /Rounding Formation Ex.Grasim Daily chart



Price Patterns :Cup /Rounding Formation Ex.Bajaj Weekly chart



� Mostly occurs as continuation pattern.May

occur as reversal patterns too.

�Price movement within two contracting linessloping in different directions.

� Symmetrical / upward sloping / downward

sloping etc.

� Time and Volume test.

Price Patterns :Triangles



Price Patterns : TrianglesHind Oil Daily chart



Price Patterns : TrianglesFin Tech Daily chart



Price Patterns : TrianglesBrigade Ent Daily chart



� Cousins of Triangles

� Mostly occurs as continuation pattern.May

occur as reversal patterns too.

� Represent a phase in trended movement which

is equivalent to a small interval.

Price Patterns :Flags/Pennants/Rectangles



Price Patterns :Flags/Pennants/Rectangles Ex.A BB Lt d Daily chart Rect.



Price Patterns :Flags/Pennants/Rectangles Ex.A CC Lt d Daily chart Flag Inv



Price Patterns :Flags/Pennants/Rectangles Ex.IDBI Lt d Daily chart Pennant



� Mostly occurs as reversal pattern.

� Price movement records two highs at a same

level in case of double top and two lows at samelevel in case of double bottom.

� Volume confirmation is important.

Price Patterns :DoubleTops & Bottoms



Price Patterns :Double tops &bottoms Ex.Colgate Daily chart Dou. t op



Price Patterns :Double tops &bottoms Ex.R Com Daily chart Dou. bott om



� Mostly occurs as reversal pattern.

� Price movement records three highs at a same

level in case of triple top and three lows at samelevel in case of triple bottom.


Price Patterns :Triple Tops& Bottoms



Price Patterns :Triple tops &bottoms Ex.BEML Daily chart Triple t op



Price Patterns :Triple tops &bottoms Ex.HTMT Daily chart Triple bott om



� Mostly occurs as reversal pattern.May occur as

continuation patterns too.

�Price movement within two contracting linessloping in same directions.

� upward sloping / downward sloping wedges.


Price Patterns :Wedges



Price Patterns : UpwardSloping Wedge - examplesIDFC Daily chart



Price Patterns : UpwardSloping Wedge - examplesRel Cap Daily chart




Uptrend:

Higher tops and higher bottoms represent an uptrend

Down trend:

Falling tops and falling bottoms represent a downtrend




Trend-lines: lines on the chart which represent

a particular trend and also signal reversals in

such trends.

A trend line is formed by joining a series of tops (if

the trend is down) or bottoms (if the trend is up) and

suggests that the ongoing trend is in force as long as

the line is not violated.




Example of Trend Lines



Foundations of TechnicalAnalysis - Trendlines

3 important parameters to judge a trendline:

� The length or time of existence of a trendline.

�No of touch points .

�Slope of the trendline.



A moving average is an indicator that show·s the 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 changes with change in the price of

security.

MOVING AVERAGES



� The SimpleMoving Average

� The WeightedMoving Average

� The ExponentialMoving Average

MOVING AVERAGES

� Smoothen the underlying data

�

Represent the trend for which average is calculated

� Provide Support Resistance level



Using moving averages

� Identifying trend reversal by price and moving average crossover

� Identifying trends by crossover of two moving averages.

�

Short periodM

A - Early entry or exit from the trendBUT

morewhipsaws and higher incidence of false & loss making trades.More

transaction costs.

�Long periodMA - Late entry and exit from the trend but lesser

whipsaws and lower transaction costs.

MOVING AVERAGES



Example of a moving average (200 DMA : NIIT)

MOVING AVERAGES



�Cr ossove r of th e MAs is u sed t o en t e r or exi t posi t ions

�L a t e en try and exi t but ve ry few w h ipsaws

�Good for l ong t e rm tr ading and posi t ioning

�M or e s t a bl e, m or e peace of m ind.

MOVING AVERAGES



Cross over Signals

MOVING AVERAGES



MOVING AVERAGE EXAMPLE

MOVING AVERAGES




MOVING AVERAGES



MOVING AVERAGES


F d ti f T h i l




MOMENTUM& DIVERGENCE

F d ti f T h i l




Divergences

F d ti f T h i l




Divergences : -VE divergence Aptech Ltd

F d ti f T h i l




Divergences : Nifty Daily chart



F d ti f T h i l




Functions of SUPPOR T:

� Level around which one can initiate long positions

� Used for putting stop loss orders.

� Levels around one which can look to square short side

trades� Violation of important support levels indicate possibility

of further decline in the stock price.

F d ti f T h i l




Functions of RESISTANCE:

� Level around which one can initiate short positions

� Used for putting stop loss orders.

� Levels around one which can look to square long side

trades� Violation of important resistance levels indicate possibility

of further advance in the stock price.

F d ti f T h i l




How to arrive at Supports & Resistances:

� Trendlines

� Levels on price patterns

� Moving averages� Gaps

� Consolidations

� Historical tops and bottoms

� Fibonacci Retracement levels

F d ti f T h i l




THANK Y OU

technical analysis pres

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