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Technical Analysis - What is it? (chart reading?)
 

Technical Analysis - What is it? (chart reading?)

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More and more people are turning to the study of share market price charts in order to understand the likelihood of a share price: (a) increasing, (b) decreasing, or (c) staying stuck in a range. ...

More and more people are turning to the study of share market price charts in order to understand the likelihood of a share price: (a) increasing, (b) decreasing, or (c) staying stuck in a range. Especially with the markets turmoil of 2007+. Many people are disenchanted with their financial advisor, broker, or their investment bank.

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    Technical Analysis - What is it? (chart reading?) Technical Analysis - What is it? (chart reading?) Presentation Transcript

    • Technical Analysis Technical Analysis?candlestick What is it? chart patterns patterns October 2011 price breakout monthly candle chart © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 1 Rev 1.1a
    • TechnicalAnalysis Disclaimer ➔ CAUTION!! ➔ This presentation contains NO advice. ➔ It is for general education only. ➔ Always consult a trained, trustworthy professional before investing, to determine if your intended investment might suit your personal individual situation. 2
    • TechnicalAnalysis What is Technical Analysis? A definition The use of market data and The use of market data and charting skills to anticipate market charting skills to anticipate market direction and timing direction and timing to make consistent profits. to make consistent profits. © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 3
    • TechnicalAnalysis What is Technical Analysis? T.A. is: . . . 1. Price charts and chart patterns 2. Candle patterns 3. Chart Indicators ● Moving Average, MACD, RSI, P-SAR, etc. 4. Numeric analysis 5. Specialist topics: ● Fibonacci, Elliott Wave, W.D.Gann 6. Using charting software © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 4
    • TechnicalAnalysis Price Chart Basics The Weekly Line Chart Weekly Chart:- Shows the Closing price at the end of each week. The weekly Closing prices are joined together by straight lines. © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 5
    • TechnicalAnalysis Price Chart Basics Up Trends Could you have been tempted to buy this stock? If only we could If only we could spot these trends spot these trendsand take advantage.and take advantage. Up 81% in 40 weeks. © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 6
    • TechnicalAnalysis Price Chart Basics Down TrendsWould you be temptedWould you be tempted to buy this stock? to buy this stock? (ps: its Telstra) (ps: its Telstra) © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 7
    • TechnicalAnalysis Price Chart Basics Defining a trend● Identify the Peaks and Troughs.● Look for: Higher Peaks (HP) and Higher Troughs (HT) (or Higher Highs and Higher Lows). © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 8
    • TechnicalAnalysis Price Chart Basics Trend = Higher Highs and LowsGet a feel for what theprice is doing.Identify trends(up, or down), ornon-trending.Use indicators to help. Terminology:- © Copyright 2011, Robert B. Brain, Higher High = Higher Peak Brainys Share Market Toolbox — www.robertbrain.com Higher Low = Higher Trough 9
    • TechnicalAnalysis Price Chart Basics Beware the down trend Not a good idea to invest Not a good idea to invest in a down-trending stock, in a down-trending stock,until the trend has finished*.until the trend has finished*. © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com **— Dow Theory — Dow Theory 10
    • TechnicalAnalysis Price Chart Basics Chart patterns Base Consolidation Base Consolidation © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 11
    • TechnicalAnalysis Price Chart Basics Chart patterns The Bullish The Bullish Falling Wedge Falling Wedge chart pattern chart pattern © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 12
    • TechnicalAnalysis Price Chart Basics Chart patternsThe Expanding TriangleThe Expanding Triangle (megaphone) (megaphone) chart pattern chart pattern © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 13
    • TechnicalAnalysis Price Chart Basics OHLC Bar and Candle... Each bar on a bar chart, and each candle on a candle chart summarises the price action in any one period (a day, week, month, etc.). © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 14
    • TechnicalAnalysis Price Chart Basics Support and Resistance Support lines Support linesResistanceResistance © Copyright 2011, Robert B. Brain, Note: Sometimes a Brainys Share Market Toolbox — www.robertbrain.com “fat pencil” is appropriate. 15
    • TechnicalAnalysis Price Chart Basics Candle body and tails● Their presence or absence is important● Their length (ie. their height) is important. © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 16
    • TechnicalAnalysis Price Chart Basics Candle patterns — small bodies● With or without a gap from previous candle.● Hanging Man (at tops)● Shooting Star (2-candle pattern)● Evening Star (3-candle pattern)● Doji Star (2-candle pattern)● Hammer (at bottoms)● Morning Star (3-candle pattern) © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 17
    • TechnicalAnalysis Price Chart Basics Patterns — engulfing and piercingReversal patterns in UP Trends:-● Engulfing Bearish — “outside day” (2-candle pattern)● Dark Cloud (2-candle pattern)● Harami Bearish (2-candle pattern) © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 18
    • TechnicalAnalysis Price Chart Basics Patterns — engulfing and piercingReversal patterns in DOWN Trends:-● Piercing Line (2-candle pattern)● Engulfing Bullish (2-candle pattern)● Harami Bullish — “inside day” (2-candle pattern)● Harami Cross (2-candle pattern) © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 19
    • TechnicalAnalysis Chart Indicators Moving Average (MA)● 21 day MA is the average of all prices for the last 21 price bars*● Can indicate a trend● Can be used to interpret buy/sell signals. * - A “bar” - can be: a daily bar on a daily chart, or a weekly bar on a weekly chart, etc. © Copyright 2011, Robert B. Brain, or just each point on a line chart. Brainys Share Market Toolbox — www.robertbrain.com . 20
    • TechnicalAnalysis Chart Indicators Moving Average — how to calculate?Simple calculation of 8.53-period MA. 8 8 8 7.67 7.67 7.5The first MA value is 7 7 7 7 7the average of the 6.5first 3 price values: 6 6 6 6(4+5+6) 15 5.5 Price = =5 5 3-period MA 3 3 5 5 4.5 4 4 1 2 3 4 5 6 7 8 © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com . 21
    • TechnicalAnalysis Chart Indicators Bollinger Bands A top line, A top line, average line average line and bottom line. and bottom line.Weeklycandles Share Market Toolbox — www.robertbrain.com © Copyright 2011, Robert B. Brain, Brainys . 22
    • TechnicalAnalysis Chart Indicators Average True Range (ATR)Useful to understand the notion of ATR ATR indicator ATR indicatorThis one shows the average This one shows the average variation in price over the variation in price over the last 14 candles. last 14 candles. Weekly candles © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com . 23
    • TechnicalAnalysis Applications, samples, strategies Stop Loss? — under Support? Initial Stop Loss position Initial Stop Loss position could be under recent could be under recent support and under support and under recent price action. recent price action. Down trend Down trend is broken is broken © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com . 24
    • TechnicalAnalysis Applications, samples, strategies Stop Loss — using ATRWilson ATRTrailing StopindicatorATR = AverageTrue RangeThe stop is set ata multiple of ATR © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com . 25
    • TechnicalAnalysis Applications, samples, strategies Sample Trading Strategies1. Find stocks using fundamental analysis and time entry with technical analysis2. High dividend yield3. Long term bull market strategy, different to:4. Shorter term bull market strategy5. Different for a bear market.6. Momentum indicator + MA-of-Momentum (see next slide) © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com . 26
    • TechnicalAnalysis Applications, samples, strategies Sample StrategiesMomentum indicatorMomentum indicator and and MA-of-Momentum MA-of-Momentum © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com . 27
    • TechnicalAnalysis Applications, samples, strategies Sample Strategies● Use ADX indicator for entry (Chuck le Beau)● Use Parabolic SAR for exits● Price Breakout (see next slide) © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com . 28
    • TechnicalAnalysis Applications, samples, strategies Price Break Out © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com . 29
    • TechnicalAnalysis Applications, samples, strategies Moving Average Cross-over © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com . 30
    • TechnicalAnalysis Applications, samples, strategies Some successful strategiesThese are in use by some successful traders:● Use the MACD and the RSI indicators. Look for RSI divergence against the share price.● Use Stochastic indicator and Directional Movement (ADX) to give joint signals. © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com . 31
    • TechnicalAnalysis Applications, samples, strategies Some more strategiesNote: None of these can be guaranteed!!● Takeover target speculation● Momentum trading● Position trading● Swing trading● Dividend stripping● IPOs● Hedging © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com . 32
    • TechnicalAnalysis Applications, samples, strategies Isnt this gambling?● Some people think that share trading is just gambling?● Without a proper trading plan and trading strategy then may be it is.● But if you have a proper, proven and tested plan, then it is actually calculated risk taking.● Compare with other professions: – farming, retail business, catering, – tourist trade, tradesman, handy man, etc. © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com . 33
    • TechnicalAnalysis Applications, samples, strategies Trading — Final TipsWatch out for:● Use a stop loss!● Low liquidity● Watch diligently (dont take your eyes off the ball)● Retracements● Sucker rallies● Profit takers● The 3-period pause in a rally © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com . 34
    • TechnicalAnalysis Specialised Topics Fibonacci Retracement © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com . 35
    • TechnicalAnalysis Charting Software Use good charting software● If you use a basic charting tool, then the information might be limited to the basics● Use a better tool for greater flexibility and more informative results. (in Australia — BullCharts) © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 36
    • TechnicalAnalysis Charting Software Charting software – key features● Data — Easy access to download data● Price charts in various time frames● Intraday data (optional)● Indicators – draw them on the chart● Watchlists – several lists of stocks to easily keep an eye on● Scans – Specify selection criteria and scan the data for stocks that match the criteria● Line studies and annotations on the chart © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 37
    • TechnicalAnalysis What is Technical Analysis? Technical Analysis is: . . . 1. Price charts and chart patterns 2. Candle patterns 3. Chart Indicators ● Moving Average, MACD, RSI, P-SAR, etc. 4. Numeric analysis 5. Specialist topics: ● Fibonacci, Elliott Wave, W.D.Gann 6. Using charting software © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 38
    • TechnicalAnalysis What is Technical Analysis? More details? Refer to Brainys Share Market Toolbox: www.robertbrain.com for more information This presentation: © Copyright, 2011, Robert Brain All rights reserved. © Copyright 2011, Robert B. Brain, Brainys Share Market Toolbox — www.robertbrain.com 39