6. Technical Analysis? Huh?
• Don’t get intimidated when hear “technical
analysis”
• Comes down to your supply and demand
– How is this different from fundamental analysis?
• Tries to make sense of market emotions by
studying the market actions
8. Basic Terms
• Volatility
• Fluctuations
• 52-week high / low
• Price / trading range
• Open / closing price
9. Charts
• Maps price performance
• Sheds light on supply
and demand
• “investment roadmap”
• Price / volume
relationship important
10. Chart Types - Line Charts
• Most basic of all charts
• Just a line that connects
the closing prices over a
time frame
• No trading range
11. Chart Types – Bar Chart
• Vertical line represents highs/lows of the day
• Horizontal line represents closing price
• Red = down
• Blue/Black = up
Daily High
Daily Low
Closing Price
Price Gap
12. Chart Types – Candlestick Charts
• Vertical line represents the
trading range
• Wide bar represents open
and close
• White bar – Up and closes
above opening price
• Red Bar – down
• Black bar – up, but closes
below the opening price
13. Chart Basics – Time Scale
• Time Scale
– Dates along bottom of chart (varies from
seconds to decades)
– Common Types: intraday, daily, weekly, monthly
– Subtle differences between different time scales
19. Trendlines
• Simply put, a line
drawn on a chart to
represent the overall
trend
• Upward trendline,
connecting the lows,
represents support
20. Channels
• Two parallel trend lines that act as areas of
support and resistance (more later)
• Any break through the channel is a break of the
trend, otherwise the price should stay in range
22. Chart Analysis : Support
Price at which BUYERS > SELLERS consistently.
Buyers who missed out on the first dip will be
pressured to buy if price continues to respect the
support.
23. AMZN Example of Supports
AMZN retraces from a
monstrous rally to
$60
AMZN stops tanking at
$60. NOT A
COINCIDENCE.
24. GOOG Support Psychology
GOOG skyrockets from
AWESOME earnings,
but should I buy it????
$510. MANNNN, I should
have bought GOOG
OK. I’m not
gonna miss
out again.
BUY @ $452
$$$$$!!
CAUTION:
Supports can
breakdown.
25. Support Breakdowns
SELL if support “breaks down”, because it
signifies that BUYERS no longer overpower
SELLERS.
Breakdowns are a BEARISH SELL signal.
You should have sold here,
at the BREAK DOWN.
26. Chart Analysis : Resistance
Price at which SELLERS overwhelm
BUYERS consistently.
When a stock makes a new high and
then retraces, sellers who missed out @
the previous peak will feel pressured to sell
when price climbs back to that level.
27. TM – Resistance Psychology
I should have sold
when TM was $138!!
Finally! $138. I better
sell this time.
Should I sell?? Na, I’ll
take my chances.
28. Resistance Breakouts
When price “breaks out” above resistance, it
becomes a new support level. *** IMPORTANT ***
Breakout signifies clear dominance of BUYERS.
(good time to buy)
This is a BULLISH BUY signal.
My favorite trade setup.
32. Moving Averages (DMA or WMA)
• Most popular are 50-day and 200-day
• Shows the average price of the last # days and
plots it on a line
• Often acts as areas of support and/or resistance
36. CPA – Support at 20 & 50 DMA
20 DMA and 50 DMA
becomes points of
support for this stock
37. So…
• Charts are fundamental to technical analysis
• Important to understand what is shown on a
chart and the information it conveys
• Chart patterns and bases to come…
39. Charting on StockCharts.com
Getting comprehensive stock charts
• Type in the company symbol
• Once you’re at the stock page, click on
annotate to draw your own trendlines.
• From there, you will get lots of tools for
analyzing stock charts
42. Using Charts on Investors.com
• Log in using your username and password
(you all have one as of now)
• Enter a symbol for the stock and then click
on IBD Charts just below it
– There are links throughout the website that link
to IBD charts
– Right clicking on the chart will give you important
data for that day or week
44. Homework / Reading
• “Technical Analysis: Introduction”
– Investopedia Tutorial
– Link is on the download page of the website
45. Next Week
• We’ll be going over strategies using charts to
buy stocks
– Timing market bottoms
– Identifying chart bases / patterns
– Timing your stock purchases (after you’ve done
your research / stock screens)
• This is going to be the most technical / complicated
part so make sure you understand the basics
Editor's Notes
Need examples
You can see that there are subtle differences between the charts. In the daily chart, you tend to see more fluctuations from day to day. When you graph on a weekly basis, you smooth out the fluctuations somewhat, and in many cases, you case more easily identify a trend. Some investors tend to use weekly graphs more because it gives them a better overall picture of what’s going on in terms of trends.
We’ll talk about bases (cup with handle, flat bases, breakouts, double bottoms later). Maybe in the next lecture we can do that along with the market tops/bottoms. I thought this lecture would just be a good primer for tech analysis.
You can see here on the chart the trend is a definite uptrend. The black arrows show that the lows for each period are higher than the previous lows. The red arrows show that the highs for each period of time are higher than the previous period.
As you can see, it is difficult to determine the trend here with so much fluctuation and volatility. There are times when the near-term trend of a stock is too difficult to determine.
Variations of moving averages is the 10-week and the 40-week moving averages. The 10-week is the same time-span as the 50-day. 10-weeks are found on weekly charts and can show slightly different points and calculations than the 50-day.
In this chart, you can see the moving average acts a type of resistance and clearly shows a downward trend. The stock fails to break above its 50-day moving average.
Black line is the 40-week moving average and the red line is the 10-week moving average. In this chart, we see that the stock essentially bounces up every time the stock gets near or on the 10-week moving average. These are areas of support as buyers purchase shares here. This type of action also helps investors to recognize the trend of the stock. In this case, the stock is in an uptrend.
Relative Strength line measures the price performance of the stock to the price movements of the S&P500. The line is calculated by dividing the price of the stock by value of the S&P 500 index on that day. The RS Rating is an Investor’s Business Daily rating compares the price performance of the stock to all other stocks in the past 12 months. A 98 rating means that the stock has outperformed 98 percent of all stocks.
