Overview of the basics of technical analysis

1. Investing in Shares
Introduction to Technical
Analysis
Australian Shareholders Association
Tutorial Resource Library

2. Disclaimer
• The ASA is not licensed to give financial advice.
• The content of these presentations is not designed to
provide any specific investment advice to any person
present.
• The ASA does not accept any responsibility to inform
you of any matter that subsequently comes to our
notice that may affect any of the information
discussed.
• Anyone wishing to act on any matter discussed
should seek independent advice from a licensed
financial adviser.

3. Outline
• What is Technical Analysis
• What is involved?
• Price Charts
• Candlesticks & Candlestick Patterns
• Trendlines
• Support and Resistance
• Moving Averages
• Chart Patterns

4. What is Technical Analysis
• Technical analysis is the study of the price and volume
movements of a stock or market.
• It is based on the belief that everything that is known
about a stock is reflected in the share price and the
volume of shares traded.
• Technical analysis can give indicators to investors as to
when to buy or sell by providing insights into market
sentiment and
• Can be used on all timeframes –
daily, weekly, monthly
• Covers many techniques – pick a
few to add to your technical analysis
‘toolkit’.

5. What’s involved in Technical Analysis?
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Price Charts
Candlesticks & Candlestick Patterns
Support and Resistance
Trendlines
Moving Averages
Chart Patterns
Indicators
Fibonacci
Dow Theory
Elliot Wave, W.D Gann Theory, Cycles
...... Plus a whole lot more!
This presentation will provide an overview of the first six
topics listed here.

6. Price Charts
• Technical analysis uses data based on price and
volume – data can be from a daily, weekly,
monthly or even shorter timeframe (e.g. hour)
– open, low, high, and close prices from the set
timeframe e.g. one trading day or one trading week,
and volume.
• The data is presented in a chart
• There are many different types of charts
• We will look at 3 types of charts
– line charts
– bar chart
– candlestick charts

7. Price Charts
The three charts on the following three slides
are of the same stock over the same time
period.
1st is a Line Chart
2nd is a Bar Chart
3rd is a Candlestick Chart
Look at the difference in detail in each of the
charts

8. Line Chart
Usually, based on the close price, cuts out the ‘noise’

9. Bar Chart
More detail, can see the open, high, low close so
investor can get a ‘feel’ for sentiment

10. Candle Chart
More visual, easier for investor to see open, high, low
close and sentiment

11. Types of Charts Key Differences
Line Chart - usually, based on the close price,
cuts out the ‘noise’
Bar Chart – more detail, can see the open, high,
low close so can get a ‘feel’ for sentiment
Candlestick Chart – more visual, easier to see
open, high, low close and sentiment

12. Candlestick
A candlestick is another way of looking at price data
– more visual as filled in bars represent negative
sentiment.

13. Candle Patterns
Candles can have names applied to them,
however, you don’t need to learn them!
It is more important to understand the price
action that the candle represents and what it
is saying about the buyers and the sellers.
You might hear terms describing candles like
Doji, Shooting Star, Hammer, Harami,
Engulfing, Piercing, Hanging Man, Evening
Star.
Let’s look at a two examples and see
what they mean for supply
(sellers) and demand (buyers)

14. Bullish Candle
The candle shown here is a normal bullish candle.
The body of the candle is not filled so we know
that the price opened at the bottom of the body
of the candle and closed at the top of the body.
Sometime during the day, price traded to the
bottom of the lower ‘wick’ or tail and to the top
of the upper ‘wick’.
From a supply and demand perspective, this
candle is showing positive sentiment, buyers
were prepared to pay more for this stock and
pushed the price up so that it closed near the
highs

15. Doji Candle
The candle shown here is called a Doji candle – this
one has a special name, it is called a Gravestone doji.
The price opened and closed at the same price so
there is no body to this candle. During the trading
period, buyers pushed the price up, but sellers came
into the market and pushed the price back down so
that the trading session closed on its lows.
If this candle occurred after an uptrend, this could
indicate a potential change in trend. A Gravestone
doji is generally a bearish or negative sentiment
candle.

16. Candlestick Summary
Learning about candles and using them on your
charts can be a useful investing tool.
Candles and candle patterns provide you with a
visual representation of market psychology
and sentiment.
There are lots more types of candles and
combinations of candles to make patterns.
Do your own research to learn
more!

17. Candlestick Key Points to Remember
• Length of body – long or short, what is it
telling you?
• Length of tails – or absence of tails, what does
it mean?
• Can suggest a possible change in trend
Candlesticks shouldn’t be used in
isolation to make buy and sell
decisions BUT used with other
‘western’ technical tools they can
add value to your investing
‘toolkit’.

18. Trend Lines
• Perhaps the simplest form of technical analysis
• Markets are not random they often move in trends
• And these trends can be marked on a chart by the
drawing of trend lines

19. Uptrend
A series of higher highs and higher lows

20. Downtrend, sideways & change of
trend
Downtrend – a series of lower highs and lower lows
Change of trend – when a
higher low is made and the
previous high is surpassed

21. Support
A support level is the price at which buyers are
expected to enter the market in sufficient
numbers to take control from sellers.
A support line can be horizontal or sloping
upward

22. Resistance
A resistance level is the price level at which sellers
are expected to enter the market in sufficient
numbers to take control from buyers.
A resistance line can be horizontal or sloping
downward

23. Support & Resistance
In this chart, old resistance becomes new support and a clear
break of the support line at the right of the chart was a signal
to exit the stock

24. Moving Averages
• Moving Averages (MA’s) are a way of coping
with the problem of random information.
• MA’s are lagging indicators and are the basis
of many other indicators
• MA’s take data points and plot them as an
average making it easier to discern trends
There are many types of
moving averages – simple,
exponential, weighted

25. Moving Averages
One of the most common MA’s is the 200 Day
Simple Moving Average.
It is often quoted as providing support or
resistance to price action for various stocks
and indices.
Because it is so widely used, it
may be beneficial to become
familiar with it.

26. Simple Moving Average – 200 Day
This is a 200 Day simple moving average plotted
over BHP.

27. Multiple Moving Averages
Another form of moving averages is the
Multiple Moving Averages or MMA’s.
• Developed by Australian trader and investor
Daryl Guppy they present a very visual
representation of the sentiment of traders
and investors.
• The longer term MMA’s are said to represent
the action of investors and the shorter term
MMA’s that of traders.
• The interaction between the two groups of
MMA’s can be used to time entries and exits.

28. Multiple Moving Averages
Guppy Multiple Moving Averages plotted on a
daily chart.

29. Chart Patterns
Chart patterns reflect human behaviour in a market
and can be seen on all timeframe charts.
The following chart patterns offer a high probability
of future market movement and can be used to
select stocks or to time entries into stocks.
Continuation patterns
• The triangle
• The flag
Reversal patterns
• Double tops
• Head and shoulders

30. Reversal or Continuation
A continuation and reversal pattern ….

31. Ascending Triangle
A series of ascending triangles – examples of
continuation patterns

32. Flag
Flag continuation patterns – investors could look
for breakouts from the pattern

33. Reversal Patterns
• Reversal patterns can usually be found at the
beginning or end of trends.
• They can form on any timeframe chart,
however, the longer the timeframe the more
significant the pattern.
• In some cases the height of
the pattern can be used to
estimate the price targets
if price breaks the pattern.

34. Double Top
A Double top on a weekly chart – taking a long
time to form, reversing a long term uptrend

35. Head and Shoulders
A Head & Shoulders pattern – the neckline can
slope in either direction

36. Bottom Reversal Patterns
A Double Bottom pattern

37. Bottom Reversal Patterns
A Reverse Head and Shoulder pattern

38. Summary
• Technical Analysis does not provide a forecast.
• It provides tools to gauge the probability that
a future event may occur.
• Always be aware of the time frame – look at
the longest time frame charts first to get the
big picture.
• Generally signals in longer
time frames are more
reliable than those in
shorter time frames.

39. ASA Learning
To find out about other learning resources
available to investors, explore the ASA’s
Investor Education Pathway