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- 1. TECHNICALLY SPEAKING…byJEAY<br />
- 2. WHAT IS TECHNICAL ANALYSIS<br />Technical analysis is the forecasting of future financial price movements based on an examination of past price movements. <br />“Like weather forecasting”, technical analysis does not result in absolute predictions about the future. Instead, it can help the investors anticipate what is “likely” to happen to prices over a period of time.<br />It does not care one bit about the “value” of a company or a commodity.<br />Technical analyst are only interested in the price movements in the market<br />Technical analysis uses a wide variety of charts, technical indicators and oscillators to analyze the price movements<br />
- 3. WHERE IT WORKS<br />Technical analysis is applicable to stocks, indices, commodities, futures or any tradable instrument where the price is influenced by the forces of supply and demand.<br />Price refers to any combination of the open, high, low, or close for a give security over a specific time frame.<br />The time frame can be based on intraday (1-min. 5-minutes, 10-minutes, 15-minutes, 30-minutes or hourly) daily, weekly or monthly price data or many years<br />In addition, some technical analysts include volume or open interest figures with their study of price action.<br />
- 4. OBJECTIVES<br />The basic objectives of Technical Analysis is to find the answer to the following questions.<br /><ul><li>Which way is the market moving?
- 5. How far up or down will it go?
- 6. When it will go the other way?</li></ul>Understand the emotions in the market by studying the market itself,<br />
- 7. ASSUMPTIONS<br />The field of technical analysis is based on the three assumptions:<br /> 1. The market discounts everything<br /> 2. price moves in trends<br /> 3. History tends to repeat itself<br />
- 8. USE OF TREND<br />A trend is really nothing more than the general direction in which a security or market is headed.<br />The importance of trend to be able to understand and identify trends so that you can trade with rather than against them.<br />Popular Sayings “The trend is your friend” and “don’t buck the trend”<br />There are three types of trend:<br /> 1.Uptrends <br /> 2.Downtrends<br /> 3.Sideways<br />
- 9. CONT…<br />UP TREND<br />NO TREND<br />
- 10. CONT…<br />TREND LENGTHS<br />TRENDLINES<br />
- 11. CHANNELS<br /><ul><li>Channel is the addition of two parallel trend lines that acts as strong areas of support and resistance.
- 12. The upper trend line connects a series of highs, while the lower trend line connects a series of lows.
- 13. A channel can slope upward, downward or sideways but, regardless of the direction, the interpretation remains the same.</li></li></ul><li>SUPPORT AND RESISTANCE<br />It indicates the struggle between buyers and sellers, this is reveled by the prices a security seldom moves above(resistance) or below(support)<br />Support and resistance analysis is an important part of trends because it can be used to make trading decisions and identify when a trend is reversing.<br />Support and resistance levels both test and confirm trends and need to be monitored by anyone who uses technical analysis.<br />Being aware of these important support and resistance points, traders should avoid placing orders at these major points, because in many cases, the price never actually reaches the whole number.<br />
- 14. Cont…<br />
- 15. IMPORTANCE OF VOLUME<br />Volume is simply the number of shares or contracts that trade over a given period of time, usually a day.<br />The higher the volume, the more active the security.<br />To determine the movement of the volume(up or down) we can look at the volume bars that can usually be found at the bottom of any chart.<br />Volume bars illustrate how may shares have traded per period and show trends in the same way that prices do.<br />Volume should move with the trend, if prices are moving in an upward trend, volume should increase(and vice versa)<br />
- 16. <ul><li>Volume is to confirm chart patterns
- 17. Price is proceeded by volume.
- 18. Volume is closely monitored by technicians and chartists to form ideas on upcoming trend reversals.
- 19. If volume is starting to decrease in an uptrend, it is usually a sign that the upward run is about to end</li></li></ul><li>CHARTS<br />A chart is simply a graphical representation of a series of prices over a set time frame<br />Charts are one of the most fundamental aspects of technical analysis. <br />There are three main types of charts that are used by investors and traders<br />Line chart<br />Bar chart<br />Candlestick chart <br />
- 20. LINE CHART<br /><ul><li>The most basic of the four charts is the line chart because it represents only the closing prices over a set period of time.
- 21. The line is formed by connecting the closing prices over the time frame</li></li></ul><li>Bar chart<br /><ul><li>The chart is made up of a series of vertical lines that represent each data point
- 22. This vertical line represents the high and low for the trading period, along with the closing price
- 23. The close and open are represented on the vertical line by a horizontal dash.
- 24. The opening price on a bar chart is illustrated by the dash that is located on the left side of the vertical bar
- 25. Conversely, the close is represented by the dash on the right.</li></li></ul><li>Candlestick chart<br /><ul><li>It illustrates the difference between the open and close
- 26. When the price of the stock is up and closes above the opening trade, candlestick will be white or clear.
- 27. If the stock has traded down for the period, then candlestick will usually be red or black.
- 28. 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.</li></li></ul><li>CHART PATTERNS<br />A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a sign of future price movements.<br />Analysts use these patters to identify current trends and trend reversals and to trigger buy and sell signals<br />Popular chart patterns are,<br />1. Head and shoulders 7. gaps <br />2. Cup and handle 8. Triple tops and bottoms<br />3. Double Tops and Bottoms 9. Rounding Bottom<br />4. Triangles <br />5. Flag and Pennant<br />6. wedge<br />
- 29. Head and shoulders<br /><ul><li>This is one of the most popular and reliable chart patterns in technical analysis
- 30. Head and shoulders top is a chart pattern that is formed at the high of an upward movement and signals that the upward trend is about to end.
- 31. Head and shoulders bottom, also known as inverse head and shoulders is used to signal a reversal in a downtrend</li></li></ul><li>Cup and handle<br /><ul><li>A cup and handle chart is bullish continuation pattern in which the upward trend has paused but will continue in an upward direction once the pattern is confirmed</li></li></ul><li>Double tops and bottoms<br /><ul><li>It signals a trend reversal
- 32. It is considered to be one of the most reliable and is commonly used
- 33. These patterns are formed after a sustained trend and signals that the trend is about to reverse
- 34. The pattern is created when a price movement tests support or resistance levels twice and is unable to break through.
- 35. It is often used to signal intermediate and long-term trend reversals</li></li></ul><li>Triangles<br /><ul><li>Triangles chart patterns used in technical analysis
- 36. Symmetrical triangle, ascending and descending triangle are three types of triangles
- 37. These chart patterns are considered to last anywhere from a couple of weeks to several months</li></li></ul><li>Flag and pennant<br /><ul><li>These two short-term chart patterns formed when there is a sharp price movement followed by a generally sideways price movement
- 38. This pattern is then completed upon another sharp price movement in the same direction as the move that started the trend
- 39. The patterns are generally thought to last from one to three weeks</li></li></ul><li>wedge<br /><ul><li>Wedge chart pattern can be either a continuation or reversal pattern
- 40. It is similar to a symmetrical triangle except that the wedge pattern slants in an upward or downward direction
- 41. Wedges tend to form over longer periods, usually between three and six months</li></li></ul><li>Triple tops and bottoms<br /><ul><li>These are not as prevalent in charts
- 42. These two chart patterns are formed when the price movement tests a level of support and resistance three times and is unable to break through.
- 43. This signals a reversal of the prior trend</li></li></ul><li>Rounding Bottom<br /><ul><li>A rounding bottom, also referred to as a saucer bottom,
- 44. It is a long-term reversal pattern that signals a shift from a downward trend to an upward trend.
- 45. This pattern traditionally thought to last anywhere from several months to several years</li></li></ul><li>Moving average<br /><ul><li>A moving average is the average price of a security over a set amount of time
- 46. By plotting a security’s average price, the price movement is smoothed out.
- 47. Once day to day fluctuations are removed, traders are better able to identify the true trend and increase the probability that it will work in their favor.
- 48. Types of moving average:
- 49. Simple moving average
- 50. Exponential moving average</li></li></ul><li>Simple moving average<br /><ul><li>This is the most common method used to calculate the moving average of prices
- 51. It simply takes the sum of all of the past closing prices over the time period and divides the result by the number of prices used in the calculation</li></li></ul><li>Exponential moving average<br /><ul><li>This moving average calculation uses a smoothing factor to place a higher weight on recent data points and is regarded as much more efficient
- 52. It is more responsive to new information relative to the simple moving average
- 53. This responsiveness is one of the key factors of why this is the moving average of choice among many technical traders</li></li></ul><li>Uses of moving average<br /><ul><li>Moving averages are used to identify current trends and trend reversals as well as to set up support and resistance levels
- 54. MS can be used to quickly identify whether a security is moving in an uptrend or a downtrend depending on the direction of the MA
- 55. Moving averages help technical traders smooth out some of the noise that is found in day-to-day price movements, giving traders a clearer view of the price trend.</li></li></ul><li>INDICATORS AND OSCILLATORS<br />Indicators are calculations based on the price and the volume of a security that measure such things as money flow, trends, volatility and momentum.<br />Indicators are used as a secondary measure to the actual price movements and add additional information to the analysis of securities<br />It used in two main ways:<br />To confirm price movement and the quality of chart patterns<br />To form buy and sell signals<br />
- 56. OSCILLATORS <br /><ul><li>The indicators that are bound within a range are called oscillators
- 57. Oscillator indicators have range, for example between 0 to 100, and signal periods where the security is overbought(near100) or oversold(near 0)</li></li></ul><li>Accumulation/Distribution line<br /><ul><li>The accumulation/distribution line is one of the more popular volume indicators that measures money flows in a security
- 58. This indicator attempts to measure the ratio of buying to selling by comparing the price movement of a period to the volume of that period
- 59. Calculated:
- 60. If a security has an accumulation/distribution line that is trending upward, it is a sign that there is more buying than selling</li></li></ul><li>MOVING AVERAGE CONVERGENS AND DIVERGENCE<br /><ul><li>This indicator is comprised of two exponential moving averages, which help to measure momentum in the security.
- 61. The MACD is simply the difference between these two moving avg. plotted against a centerline
- 62. When the MACD is positive, it signals that the shorter term moving average is above the longer term moving average and suggests upward momentum, the opposite holds true when the MACD is negative</li></li></ul><li>Relative strength index<br /><ul><li>The RSI indicator helps to signal overbought and oversold conditions in a security
- 63. The indicator is plotted in a range between 0 and 100
- 64. A reading above 70 is used to suggest that a security is overbought, while a reading below 30 is used to suggest that it is oversold
- 65. This indicator helps traders to identify whether a security’s price has been unreasonably pushed to current levels and whether a reversal may be on the way</li></li></ul><li>Stochastic Oscillator<br /><ul><li>The idea behind this indicator is that in an uptrend, the price should be closing near the highs of the trading range, signaling upward momentum in the security.
- 66. In downtrend, the price should be closing near the lows of the trading range, signaling downward momentum
- 67. It is plotted within a range of 0 and 100 and signals overbought conditions above 80 and oversold conditions below 20</li></li></ul><li>On-Balance volume <br />The OBV indicator is a well-known technical indicator that reflect movements in volume<br />It is also one of the simplest volume indicators to compute and understand<br />It is calculated by total volume for the trading period and assigning it a positive or negative value depending on whether the price is up or down during the trading period, the positive or negative total for the period is then added to a total that is accumulated form the start of the measure<br />
- 68. THANK YOU…<br /> Questions…?<br />

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