2. WELCOME TO GIU DAY 1, WEEK 2
WHAT IS TECHNICAL ANALYSIS?
• Technical analysis is a trading discipline
used to evaluate investments and identify
trading opportunities by analyzing statistical
trends gathered from trading activity, such
as price movement and volume. (Using
Charts)
• Technical analysts believe past trading
activity and price changes of a security can
be valuable indicators of the security's
future price movements.
• Technical analysis may be contrasted with
fundamental analysis, which focuses on a
company's financials rather than historical
price patterns or stock trends.
• Technical Analysts work on the assumption
of price movement and momentum.
3. WELCOME TO GIU DAY 1, WEEK 2
WHAT IS TECHNICAL ANALYSIS?
• Price trends – is the overall direction of the market or a stock’s price. In technical
analysis, trends are identified by trendlines or price action that highlight when
the price is making higher highs and higher lows for an uptrend, or lower lows
and lower highs for a downtrend.
• Chart patterns– different formations that a security makes that can be used
predict price movement
• Volume and momentum indicators – Indicators that use computer generate
fomulas to measure volume and momentum.
• Oscillators - An oscillator is a technical analysis tool that constructs high and low
bands between two extreme values, and then builds a trend indicator that
fluctuates within these bounds.
• Moving averages – show an average price over a given period of time. There are
2 types of MA, Exponential and Simple.
• Exponential moving average shows the average price over a given period of time
but the most recent data has more weight in the formula
• Simple Moving Average weighs all data points the same, so most recent data is
just as important as data from the begging of the given time frame.
• Support and resistance levels – key levels of concentrated supply and demand,
that either cause a pause or a retracement.
4. WELCOME TO GIU DAY 1, WEEK 2
SUPPORT AND RESISTANCE
• Technical analysts use support and resistance levels to
identify price points on a chart where the probabilities
favor a pause or reversal of a prevailing trend.
• Support occurs where a downtrend is expected to pause
due to a concentration of demand.
• Resistance occurs where an uptrend is expected to pause
temporarily, due to a concentration of supply.
• Market psychology plays a major role as traders and
investors remember the past and react to changing
conditions to anticipate future market movement.
• Support and resistance areas can be identified on charts
using trendlines and moving averages.
6. WELCOME TO GIU DAY 1, WEEK 2
IMPORTANT TERMS & LINGO
• Level – a support or resistance line that can be pointed obviously on a chart in multiple
timeframes
• Zooming in – looking at the chart of a stock and analyzing it from within short time frames.
This helps you see the short term trend and is favorable when day trading or when try to
predict a reversal or pull back.(ie. 1 min, 5 min, 10 min, 15 min, 30 min, 1hr.)
• Zooming out – looking at the chart of a stock and analyzingit from large and broad time
frames. This help you as a trader see the overall and long term trend of a security. (ie. 4hr,
daily, weekly, monthly,)
• Reversal – when a security reaches the end of its current trend and begins to go in the other
direction, weather up or down
• Pull-back / Retracment – a momentary pause in a trend, when a stock retraces to a support
or resistance level before proceeding continue its original trend.
• Breakout – either a support or resistance level that a given security uses built up momentum
over time to push for a large price shift.
7. WELCOME TO GIU DAY 1, WEEK 2
CANDLE STICK CHARTING
• Candlestick charts originated in Japan over 100 years before the West developed the bar and
point-and-figure charts. In the 1700s, a Japanese man named Homma discovered that, while
there was a link between price and the supply and demand of rice, the markets were
strongly influenced by the emotions of traders.
•
Candlesticks show that emotion by visually representing the size of price moves with
different colors. Traders use the candlesticks to make trading decisions based on regularly
occurring patterns that help forecast the short-term direction of the price.
• Candlestick charts are used by traders to determine possible price movement based on past
patterns.
• Candlesticks are useful when trading as they show four price points (open, close, high, and
low) throughout the period of time the trader specifies.
• Many algorithms are based on the same price information shown in candlestick charts.
• Trading is often dictated by emotion, which can be read easily in candlestick charts.
12. WELCOME TO GIU DAY 1, WEEK 2
CANDLE STICK CHARTING: INDICATORS
• Indicators are used to basically “indicate” but they are not absolute.
• In order to develop your own strategy you have to find “your” perfect indicators that work best with you.
• Below are the indicators I use
• The relative strength index (RSI) - is a momentum indicator used in technical analysis that measures the
magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or
other asset. We use this to determine pull back or reversals.
• Moving average convergence divergence (MACD) - is a trend-following momentum indicator that shows the
relationship between two moving averages of a security’s price. The MACD is calculated by subtracting the 26-
period exponential moving average(EMA) from the 12-period EMA. We use this to determine reversal and
breakouts.
• On-balance volume (OBV) - is a technical trading momentum indicator that uses volume flow to predict
changes in stock price. We use to to determine relative strength of volume in relation to trend momentum.
• Bollinger Bands Width (BBW) - is a technical analysis indicator derived from the standard Bollinger Bands
indicator. Bollinger Bands are a volatility indicator which creates a band of three lines which are plotted in
relation to a security's price. The Middle Line is typically a 20 Day Simple Moving Average. The Upper and
Lower Bands are typically 2 standard deviations above and below the SMA (Middle Line). Bollinger Bands Width
serve as a way to quantitatively measure the width between the Upper and Lower Bands. BBW can be used to
identify trading signals in some instances. This can tell us volatility at a specific price action
