Technical Analysis
By
K.PRABHAKARAN,
ASSISTANT PROFESSOR-FINANCE,
RVS FACULTY OF MANAGEMENT,
COIMBATORE.
Technical Analysis






Technical analysis is the attempt to forecast
stock prices on the basis of market-derived
data...
TECHNICAL ANALYSIS




The technical analyst deal with only three
pieces of data: price, trading volume, and open
intere...
Types of Charts




Line Chart
Candlestick Chart
Bar Charts
Line Chart
Line chart
Stock
Price

Declining
Trend
Channel

Peak
Flat Trend Channel
Sell Point
Rising Trend Channel
Buy Point
Trough
...
Trend Lines


There are three basic
kinds of trends:






An Up trend where prices
are generally increasing.
A Down t...
Support & Resistance








Support and resistance lines
indicate likely ends of trends.
Resistance results from the
...
Head and Shoulders




This formation is
characterized by two
small peaks on either
side of a larger peak.
This is a rev...
Head & Shoulders Example

Sell Signal

Minimum Target Price
Based on measurement rule
Double Tops and Bottoms




These formations are
similar to the H&S
formations, but there is
no head.
These are reversal...
Double Bottom Example
Triangles



Triangles are
continuation formations.
Three flavors:







Ascending

Ascending
Descending
Symmetrica...
Rounded Tops & Bottoms


Rounding formations are
characterized by a slow
reversal of trend.

Rounding
Bottom

Rounding To...
2.CANDLESTICK CHART
High
Upper Shadow
Close
Body
Open
Lower Shadow
Low
Bullish

Bearish

15
Candle Stick Charting




Green is an example of a
bullish pattern, the stock
opened at (or near) its
low and closed nea...
Candle Stick Charting




Top example is called a
hammer and is a
bullish pattern only if it
occurs after the stock
pric...
Japanese Candlesticks(Example)
3.Bar Chart

20
Bar Chart


This is a bar (open, high, low, close )
Example

Nov to Mar
Trading range

Descending
triangles

Double bottom

Gap, should get
filled
Technical Indicators



There are hundreds of technical indicators used to
generate buy and sell signals.
We will look a...
Moving Average






Calculated by applying a percentage of today's
closing price to yesterday's moving average
value.
...
Moving Average


The Moving Average Technical Indicator shows
the mean instrument price value for a certain
period of tim...
Exponential Moving Average:


The exponential moving average is a type of moving
average that gives more weight to recent...
Example for EMA
Moving Average
Convergence/Divergence (MACD)








MACD was developed by Gerald Appel as a
way to keep track of a mo...
MACD Example Chart
Relative Strength Index (RSI)
 RSI was developed by Welles Wilder as an
oscillator to measure overbought/oversold
levels....
Relative Strength Index (RSI)


The relative strength index (RSI) is one of the most
used tools in Technical analysis. RS...
RSI Example Chart
Overbought

Oversold
RSI Example
Bollinger Bands








Bollinger bands were created by John Bollinger
(former FNN technical analyst, and regular gue...
Bollinger Bands Example Chart
MONEY FLOW INDEX (MFI)




Money flow index was discovered by Created
by Gene Quong and Avrum Soudack.
Money flow is pos...
FORMULA
YEAR
Dec-11

Sep-11

Jun-11

Mar-11

Dec-10

Sep-10

Jun-10

Mar-10

Dec-09

Sep-09

Jun-09

Mar-09

Dec-08

Sep-08

Jun-0...
Pivot Point


A technical indicator derived by calculating the
numerical average of particular share high, low
and closin...
Formula for Pivot Point
Pivot Point (P)

=

(High + Low + Close) / 3

Support level 1(S1)

=

((2*pivot point) – high))

R...
Technical Analysis
Technical Analysis
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Technical Analysis

  1. 1. Technical Analysis By K.PRABHAKARAN, ASSISTANT PROFESSOR-FINANCE, RVS FACULTY OF MANAGEMENT, COIMBATORE.
  2. 2. Technical Analysis    Technical analysis is the attempt to forecast stock prices on the basis of market-derived data. Technicians (also known as quantitative analysts or chartists) usually look at price, volume and psychological indicators over time. They are looking for trends and patterns in the data that indicate future price movements.
  3. 3. TECHNICAL ANALYSIS   The technical analyst deal with only three pieces of data: price, trading volume, and open interest. He evaluates them to form an opinion on the likely direction of prices over the next several days. Technical analysts believe that the historical performance of stocks and markets are indications of future performance.
  4. 4. Types of Charts    Line Chart Candlestick Chart Bar Charts
  5. 5. Line Chart
  6. 6. Line chart Stock Price Declining Trend Channel Peak Flat Trend Channel Sell Point Rising Trend Channel Buy Point Trough Declining Trend Channel Buy Point Trough
  7. 7. Trend Lines  There are three basic kinds of trends:    An Up trend where prices are generally increasing. A Down trend where prices are generally decreasing. A Trading Range.
  8. 8. Support & Resistance     Support and resistance lines indicate likely ends of trends. Resistance results from the inability to surpass prior highs. Support results from the inability to break below to prior lows. What was support becomes resistance, and vice-versa. Breakout Resistance Support
  9. 9. Head and Shoulders   This formation is characterized by two small peaks on either side of a larger peak. This is a reversal pattern, meaning that it signifies a change in the trend. H&S Top Head Right Shoulder Left Shoulder Neckline H&S Bottom Neckline Left Shoulder Right Shoulder Head
  10. 10. Head & Shoulders Example Sell Signal Minimum Target Price Based on measurement rule
  11. 11. Double Tops and Bottoms   These formations are similar to the H&S formations, but there is no head. These are reversal patterns with the same measuring implications as the H&S. Double Top Target Target Double Bottom
  12. 12. Double Bottom Example
  13. 13. Triangles   Triangles are continuation formations. Three flavors:     Ascending Ascending Descending Symmetrical Typically, triangles should break out about half to three-quarters of the way through the formation. Symmetrical Symmetrical Descending
  14. 14. Rounded Tops & Bottoms  Rounding formations are characterized by a slow reversal of trend. Rounding Bottom Rounding Top
  15. 15. 2.CANDLESTICK CHART High Upper Shadow Close Body Open Lower Shadow Low Bullish Bearish 15
  16. 16. Candle Stick Charting   Green is an example of a bullish pattern, the stock opened at (or near) its low and closed near its high Red is an example of a bearish pattern. The stock opened at (or near) its high and dropped substantially to close near its low 16
  17. 17. Candle Stick Charting   Top example is called a hammer and is a bullish pattern only if it occurs after the stock price has dropped for several days. Bottom is an example of a Doji. 17
  18. 18. Japanese Candlesticks(Example)
  19. 19. 3.Bar Chart 20
  20. 20. Bar Chart  This is a bar (open, high, low, close )
  21. 21. Example Nov to Mar Trading range Descending triangles Double bottom Gap, should get filled
  22. 22. Technical Indicators   There are hundreds of technical indicators used to generate buy and sell signals. We will look at just a few Indicators  Moving Average  Moving Average Convergence/Divergence (MACD)  Relative Strength Index (RSI)  Bollinger Bands  Pivot Point  Money Flow Index
  23. 23. Moving Average    Calculated by applying a percentage of today's closing price to yesterday's moving average value. The most commonly used moving averages are of 10,20, 30, 50, 100 and 200 days. For example: a 10-day simple moving average is calculated by adding the closing prices for the last 10 days and dividing the total by 10. 24
  24. 24. Moving Average  The Moving Average Technical Indicator shows the mean instrument price value for a certain period of time.  There are four different types of moving averages:  Simple moving averages  Exponential moving averages  Smoothed moving averages  Linear Weighted moving averages
  25. 25. Exponential Moving Average:  The exponential moving average is a type of moving average that gives more weight to recent prices in an attempt to make it more responsive to new information. Formula:
  26. 26. Example for EMA
  27. 27. Moving Average Convergence/Divergence (MACD)     MACD was developed by Gerald Appel as a way to keep track of a moving average crossover system. Appel defined MACD as the difference between a 12-day and 26-day moving average. A 9-day moving average of this difference is used to generate signals. When this signal line goes from negative to positive, a buy signal is generated. When the signal line goes from positive to negative, a sell signal is generated.
  28. 28. MACD Example Chart
  29. 29. Relative Strength Index (RSI)  RSI was developed by Welles Wilder as an oscillator to measure overbought/oversold levels.  RSI is a measure of the ratio of average price changes on up days to average price changes on down days.  The most important thing to understand about RSI is that a level above 70 indicates a stock is overbought, and a level below 30 indicates that it is oversold (it can range from 0 to 100).
  30. 30. Relative Strength Index (RSI)  The relative strength index (RSI) is one of the most used tools in Technical analysis. RSI helps to signal the overbought and oversold conditions in a security. Formula: RSI First RS Average Gain Average Loss = = = = 100 100  -------1 + RS Average Gain ----------------Average Loss Total Gains / n Total Loss / n
  31. 31. RSI Example Chart Overbought Oversold
  32. 32. RSI Example
  33. 33. Bollinger Bands      Bollinger bands were created by John Bollinger (former FNN technical analyst, and regular guest on CNBC). Bollinger Bands are based on a moving average of the closing price. They are two standard deviations above and below the moving average. A buy signal is given when the stock price closes below the lower band, and a sell signal is given when the stock price closes above the upper band. When the bands contract, that is a signal that a big move is coming, but it is impossible to say if it will be up or down.
  34. 34. Bollinger Bands Example Chart
  35. 35. MONEY FLOW INDEX (MFI)   Money flow index was discovered by Created by Gene Quong and Avrum Soudack. Money flow is positive when the typical price rises. This is due to buying pressure. A ratio of positive and negative money flow is then plugged into an RSI formula to create an oscillator that moves between zero and one hundred.
  36. 36. FORMULA
  37. 37. YEAR Dec-11 Sep-11 Jun-11 Mar-11 Dec-10 Sep-10 Jun-10 Mar-10 Dec-09 Sep-09 Jun-09 Mar-09 Dec-08 Sep-08 Jun-08 Mar-08 MFI MFI EXAMPLE MONEY FLOW INDEX 70 60 50 40 30 20 10 0 MFI
  38. 38. Pivot Point  A technical indicator derived by calculating the numerical average of particular share high, low and closing prices. The pivot point is used as a predictive indicator.  If the following day’s market price falls below the pivot point, it may be used as a new support level.  Support and resistance are price levels at which movements should stop and reverse direction.
  39. 39. Formula for Pivot Point Pivot Point (P) = (High + Low + Close) / 3 Support level 1(S1) = ((2*pivot point) – high)) Resistant level 1(R1) = ((2*pivot point) – low)) Support level 2(S2) = ((pivot point) – (R1-S1)) Resistant level 2(R2) = ((pivot point) + (R1-S1))
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