03.07.06 technicalanalysis


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Must Know Technical Analysis

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03.07.06 technicalanalysis

  1. 1. Technical AnalysisBy Anna Zhang, Calvin Ma, Sunny Kanchanawong
  2. 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. 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. 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. 5. Charts – Candlesticks
  6. 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. 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. 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. 9. Charts
  10. 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. 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. 12. Up Trend• Higher highs and higher lows
  13. 13. Down Trend• lower highs and lower lows
  14. 14. Neutral Trend• trendless market, have both support and resistance Resistance Support
  15. 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. 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. 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. 18. MA – Example 1: Google (GOOG) Signal to Buy/Sell Support
  19. 19. MA – Example 2: Apple (AAPL) Signal to Buy/Sell Support
  20. 20. MA – Example 3: OXPS Signal to Buy/Sell Support
  21. 21. MA – Example 4: JSC Tatneft (TNT) Signal to Buy/Sell Support
  22. 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. 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. 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. 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. 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. 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. 28. MACD
  29. 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. 30. Stochastic
  31. 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