03.07.06 technicalanalysis

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Must Know Technical Analysis

Must Know Technical Analysis

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  • 1. Technical AnalysisBy Anna Zhang, Calvin Ma, Sunny Kanchanawong
  • 2. What is Technical Analysis?Fundamental Analysis:• Valuate company using past performances, financial status, and future growth.• The key is to find undervalued stockTechnical Analysis• Intrinsic value of company does not matter; it’s what investors are willing to pay• Observe behaviors within the market• Past occurrences can predict future actions
  • 3. What we look atFundamental Analysis: net income, cash, cash flow, growth etc.Technical Analysis: price and volume.Price : how much it’s worth in the market, its movement over timeVolume: the strength of movement. When the price goes up, is it because lots of people start moving into the market? Or is there already lots of people in it?
  • 4. Charts – Candlesticks• Started in Japan in 1700s for rice trade• There’s a link between price and supply & demand of rice BUT there’s also the emotions of traders.• Thus, there’s a difference between the price and the value of rice caused by trader emotions.• The candlestick chart analysis measures the market emotions.• Thus, reflect the short-term outlooks
  • 5. Charts – Candlesticks
  • 6. Charts – Candlesticks• Long body – • Price of stock was in wide range during trading session • Open near low/high and closed near high/low of day • Tells us… bearish or bullish• Small body – • Price of stock varied but… • Open and closed near the same price • Is neutral or indecisive of market
  • 7. Charts – Candlesticks• Look at the trend of the market preceding the pattern• Hanging Man – when it is after a rally, it can suggest a beginning of a downward trend. • Lower shadow is about 2-3x as long as body • Little to no upper shadow • Body is at the upper end of range • Black body is more bearish than white
  • 8. Charts – Candlesticks• Lucent Technologies • 3 days of stock price rising • Then hanging man appears • Next day, stock price drops over 20% From investopedia.com
  • 9. Charts
  • 10. Support & Resistance Support: a level where buyers are willing to buy; reenter the market Resistance: More selling than buying, investors believe price too high Resistance Support*There is no definite value of support and resistance level, only a Range of price.*
  • 11. Trend• a movement in one direction, until there’s a shift in the force of demand and supply causing the reverse• doesn’t necessary be a smooth line
  • 12. Up Trend• Higher highs and higher lows
  • 13. Down Trend• lower highs and lower lows
  • 14. Neutral Trend• trendless market, have both support and resistance Resistance Support
  • 15. Moving Averages (MA)• What’s MA? • It smooth out price data and observe the general direction of movement for a stock.• Types of MA: • 10-day, 20-day, 50-day, 100-day, 200-day• Function: 1.Signal to Buy/Sell 2.Support
  • 16. MA – Signal to Buy• Key: Crossover & Movement• ST: 10-day MA crosses 20- day MA Moving Upwards• MT: 10-day MA & 50-day MA; Up• LT: 10-day MA &100-day MA; Up Signal to Buy/Sell Support
  • 17. MA – Signal to Sell• ST: 10-day MA crosses 20-day MA Moving Downwards• MT: 10-day MA & 50-day MA; Down• LT: 10-day MA &100-day MA; Down• The Longer the Time Frame, The Stronger the Signal Is Signal to Buy/Sell Support
  • 18. MA – Example 1: Google (GOOG) Signal to Buy/Sell Support
  • 19. MA – Example 2: Apple (AAPL) Signal to Buy/Sell Support
  • 20. MA – Example 3: OXPS Signal to Buy/Sell Support
  • 21. MA – Example 4: JSC Tatneft (TNT) Signal to Buy/Sell Support
  • 22. MA• What’s MA? • It smooth out price data and observe the general direction of movement for a stock.• Types of MA: • 10-day, 20-day, 50-day, 100-day, 200-day• Function: 1.Signal to Buy/Sell 2.Support Signal to Buy/Sell Support
  • 23. MA – Support Example: OXPS •Strong support have been shown at 10 & 20 MA •Seldom fell below 50 MA Signal to Buy/Sell Support
  • 24. MA – Testing Support Example: AAPL •Strong support have been shown at 20 MA •Seldom fell below 50 MA •Price fell down the 20 MA test for 50 MA •Price fell down the 50 MA • test for 100 MA Signal to Buy/Sell Support
  • 25. Oscillators• Signal the change by comparing rate of change in price action. Compare to the past, has it move very far away?• Usually signal overbought and oversold• be careful: it might just be the beginning of the trend, only use it in trading in neutral market• Examples of oscillators used: -Relative Strength Index (RSI) -Moving Average Convergence Divergence (MACD) -Stochastic etc.
  • 26. Relative Strength Index (RSI) Measure the buying and selling forces, range between 0 and 100 RSI = 100 - 100/(1 + RS)RS = Average of x days’ up closes/ Average of x days’ down closes
  • 27. Moving Average ConvergenceDivergence (MACD)MACD line: subtracting 26-day exponential MA from 12- day EMASignal line: 9-day EMA of MACDWhat is EMA? - it’s a weighted MA, giving more emphasis to more recent trading daysCrossovers: MACD falls under signal line bearish MACD rises above signal line bullish
  • 28. MACD
  • 29. StochasticTheory: In an uptrend market, closing prices tend to be near the highs In a downtrend market, closing prices tend to be near the lows%K line and %D line %K = 100[(C - L14)/(H14 - L14)] C = current closing price L14 = lowest low price during 14-day period H14 = highest high during 14-day period %D = %K smoothed over three days
  • 30. Stochastic
  • 31. Conclusion• When to use technical analysis: • looking for short-term • Indicators are only indicators• When fundamental analysis is more appropriate • Long-term• Or combine both