Technical Analysis Of Stock Market

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This presentation explains some basic concepts of Technical Analysis and some useful indicator that are most popular and mostly used

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Technical Analysis Of Stock Market

  1. 1. Presented by: Mohit Jalan
  2. 2. <ul><li>Analysis of statistics generated by market activity such as past price and volume to come up with reasonable outcome in future using charts as a primary tool. </li></ul><ul><li>Should I take a long position? Should I take a short position? What is going to be the price tomorrow, next week or next year? </li></ul>Introduction
  3. 3. <ul><li>The market discounts everything </li></ul><ul><li>Prices move in trends </li></ul><ul><li>History tends to repeat itself </li></ul>Assumptions
  4. 4. <ul><li>Line chart </li></ul>Type of Charts
  5. 5. <ul><li>Bar Chart </li></ul>Type of Charts
  6. 6. <ul><li>Volume Bar Chart </li></ul>Type of Charts
  7. 7. <ul><li>Candlestick Chart </li></ul>Type of Charts
  8. 8. <ul><li>The meaning of trend in finance isn't all that different from the general definition of the term - a trend is really nothing more than the general direction. </li></ul><ul><li>A trend represents a consistent change in prices (i.e. a change in investor’s expectations) ‏ </li></ul><ul><li>A trendline is a simple charting technique that adds a line to a chart to represent the trend in the market or a stock. </li></ul>Trends
  9. 9. <ul><li>Uptrends </li></ul>Types of Trend
  10. 10. <ul><li>Downtrend </li></ul>Types of Trend
  11. 11. <ul><li>Sideways Trend </li></ul>Types of Trend
  12. 12. Support and Resistance <ul><li>Support level is a price level where the price tends to find support as it is going down </li></ul>
  13. 13. Support and Resistance <ul><li>Resistance Level is a price level where the price tends to find resistance as it is going up </li></ul>
  14. 14. Importance of Support and Resistance <ul><li>Support and resistance analysis is an important part of trends because it can be used to make trading decisions and identify when a trend is reversing </li></ul>
  15. 15. Aware: Support and Resistance levels <ul><li>Support and Resistance levels are highly volatile </li></ul><ul><li>Traders should not buy and sell directly at these points as there may be breakout also </li></ul>
  16. 16. Breakout <ul><li>The penetration of support and resistance level is called breakout </li></ul>
  17. 17. Trader’s Remorse <ul><li>Returning to the level of support or resistance after a breakout is called trader’s remorse. </li></ul>
  18. 18. Trader’s Remorse
  19. 19. Resistance <-> Support
  20. 20. Indicators <ul><li>A mathematical tool that can be applied on security’s price giving a result that can be used to anticipate trends, volatility and price </li></ul><ul><li>Indicators are used in two main ways: to confirm price movement and to form buy and sell signals </li></ul>
  21. 21. Types of Indicator <ul><li>Lagging </li></ul><ul><ul><li>This indicator simply tells you what prices are doing, they don’t warn you of upcoming changes </li></ul></ul><ul><li>Leading </li></ul><ul><ul><li>This indicators attempt to make investment calls on securities prior to actual price confirmation </li></ul></ul>
  22. 22. Moving Averages <ul><li>A simple moving average is calculated by taking average of most recent closing prices of n time period </li></ul><ul><li>Exponential Moving average applies weighting factors which decrease exponentially </li></ul>
  23. 23. Moving Averages
  24. 24. Moving Averages Convergence Divergence <ul><li>MACD is calculated by subtracting 26 days moving average from moving average of 12 days </li></ul>
  25. 25. Trading using MACD <ul><li>A 9 day moving average of MACD is plotted along with MACD </li></ul>
  26. 26. Bollinger Bands <ul><li>Bollinger bands are the envelopes plotted at standard deviations above and below the moving average </li></ul><ul><li>Bollinger Bands can be used to measure the highness or lowness of the price relative to previous trades </li></ul>
  27. 27. Bollinger Bands
  28. 28. Bollinger Bands
  29. 29. Elliot Wave Theory <ul><li>Elliot stated that stock market moves in repetitive cycles </li></ul>
  30. 30. Impulse and Corrective Patterns <ul><li>The impulse pattern consists of five waves, the five waves can be in either direction, up or down </li></ul><ul><li>Corrective patterns can be grouped into two different categories: </li></ul><ul><li>• Simple Correction( Zig-Zag ) </li></ul><ul><li>• Complex correction (Flat, Irregular, Triangle) </li></ul>
  31. 31. Fractal Structure <ul><li>The structures Elliott described meet the common definition of a fractal ( self-similar patterns appearing at every degree of trend) </li></ul><ul><li>Elliott Wave patterns that show up on long term charts are identical to, and will also show up on short term charts </li></ul>
  32. 32. Fractal Structure
  33. 33. Fibonacci Retracement Patterns <ul><li>Stocks often pull back or retrace a percentage of the previous move before reversing </li></ul><ul><li>Retracement percentages follow a Fibonacci ratio pattern, the key Fibonacci ratios are 23.6, 38.2, 50, 61.8 </li></ul>
  34. 34. Fibonacci Retracement Patterns
  35. 35. Linear Regression Lines <ul><li>When prices are below the Linear Regression Line, this could be viewed as a good time to buy, and when prices are above the Linear Regression Line, a trader might sell </li></ul>
  36. 36. Linear Regression Channel <ul><li>A Linear Regression trendline shows where equilibrium exists but Linear Regression Channels show the range prices can be expected to deviate from a trendline </li></ul>
  37. 37. Relative Strength Index <ul><li>It compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset </li></ul><ul><li>RSI= 100- 100/ (1+RS) </li></ul><ul><li>RS=EMA[U]/EMA[D] EMA- exponential moving average </li></ul><ul><li>U= Sig (close (today)-close (yesterday)) </li></ul><ul><li>D= Sig(close(yesterday)-close(today)) </li></ul>
  38. 38. Relative Strength Index Relative Strength Index
  39. 39. Stochastic Oscillator <ul><li>Compares where a security’s price closed relative to its price range over a given time period </li></ul><ul><li>Fast oscillator </li></ul><ul><li>Slow oscillator %D = SMA(%K, N) </li></ul>
  40. 40. Stochastic Oscillator <ul><li>Buy when the Oscillator (either %K or %D) falls below a specific level (e.g., 20) and then rises above that level. Sell when the Oscillator rises above a specific level (e.g., 80) and then falls below that level; </li></ul><ul><li>Buy when the %K line rises above the %D line and sell when the %K line falls below the %D line </li></ul>
  41. 41. References <ul><li>Technical Analysis A to Z by Steven B. Achelis </li></ul><ul><li>How to make money in Stocks By William J O’Neil </li></ul><ul><li>Investopedia ( www.investopedia.com ) </li></ul><ul><li>Technical Analysis of Indian stock market BSE Sensex Index (Tradersedge India) </li></ul>
  42. 42. Thank you <ul><li>If you don’t follow the stock market, you are missing some amazing drama </li></ul><ul><li> </li></ul>

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