Technical_Analysis_Presentation.pdf ....

Complete Guide to
Technical Analysis

• Technical Analysis studies price movements,
trends, and patterns to predict future stock
prices.
• It is based on historical price and volume data.
What is Technical Analysis?

• 1. Helps identify trends and reversals.
• 2. Provides entry and exit signals.
• 3. Works for short-term trading strategies.
Why Use Technical Analysis?

• 1. Line Chart
• 2. Bar Chart
• 3. Candlestick Chart (Most Popular)
Types of Charts

• 1. Open, High, Low, Close (OHLC) Concept
• 2. Bullish vs Bearish Candles
• 3. Wick and Body Explanation
Understanding Candlestick Charts

Open &close Candle Stick Pattern

How Candlestick Patterns are Formed on a Chart?
• Candlestick patterns are formed by marking the
open, close, low & high of a stock for a specific
time period. The body of the candlestick represents
the difference between the opening and closing
prices, with the color indicating whether the price
closed higher (usually green or white) or lower
(usually red or black) than it opened. The wicks, or
shadows, extend from the body to the high and low
prices, showing the range of price movement during
that period, which can help identify potential Chart
Patterns.

• 1. Doji
• 2. Hammer & Inverted Hammer
• 3. Engulfing Pattern
• 4. Morning Star & Evening Star
• 5. Shooting Star
• ETC
Key Candlestick Patterns

• A bullish engulfing candlestick pattern can be identified when a small red candle’s
high and low are breached or engulfed by a large green candle at the bottom of a
price chart. Look at the image below.
• The bullish engulfing candlestick pattern is formed when the market opens lower
than the previous day’s close, but then buyers step in and push the price higher,
closing above the previous day’s open. The bullish engulfing candlestick pattern
marks a clear transition from bearish to bullish market sentiment and an opportunity
to take long positions.
1. Bullish Engulfing

• The bullish harami candlestick pattern is a two-candle pattern. The bullish harami
pattern is characterised by the formation of a small body (Green) candle before a
larger body (Red) candle. The occurrence of this pattern typically occurs at the
bottom of the chart and indicates a potential reversal of a bearish trend towards the
bullish side.
• Bullish harami pattern indicates confusion among the market participants. Also, the
bullish harami pattern tells us that the selling pressure is declining and the buyers
are slowly taking control over the market.
2. Bullish Harami

• The Tweezer bottom candlestick pattern is a bullish reversal pattern. The pattern
consists of two or more candles with equal or identical lows forming a horizontal
support level. This candlestick pattern is typically formed at the bottom of the price
chart and signals a potential shift of momentum from bearish to bullish side.
• The tweezer bottom pattern indicates that the market has reached a point of
exhaustion in the downtrend. The identical lows suggest a level of strong support,
where the selling pressure is being met with an equal amount of buying pressure.
3. Tweezer Bottom

• The morning star candlestick pattern is a bullish reversal pattern which is made up
of three candles. The first candle is a strong bearish candle. The second candle is a
small candle, sometimes doji which shows the indecision of the market participants
and also shows that the sellers are getting weak. The third candle is a strong bullish
candle which marks the trend change.
• This candlestick pattern is a strong indication of the potential trend reversal. Traders
use this pattern to set up stop losses below the doji or the bullish candle.
4. Morning Star

• A bullish kicker is a candlestick pattern where a bearish candle is immediately
followed by a strong bullish candle. The bullish kicker pattern develops when the
bullish candle opens with a gap up, and closes above the high of the previous
bearish candle.
• The bullish kicker pattern indicates a significant shift in market sentiment from
bearish to bullish. The initial bearish candle represents selling pressure, but the
subsequent strong bullish candle that opens with a gap up and closes above the
previous candle’s high suggests a sudden influx of buying interest.
5.Bullish Kicker

• A hammer candlestick pattern is a single candlestick pattern that suggests a
potential reversal of the overall bullish trend. A hammer is produced when a candle
has a very short or no body and leaves a long, weak one on its lower side.
• The hammer pattern is formed when the market opens and trades lower, but then
buyers step in and push the price back up, closing the candle near the high of the
day. This long lower wick represents the failed attempt by the sellers to push the
price lower, and the subsequent close near the high indicates that the buyers have
regained control. This pattern suggests a potential shift in market sentiment from
bearish to bullish.
6.Hammer

• The inverted hammer candlestick pattern is a single candle pattern that is typically
formed following a downtrend. The inverted hammer is reminiscent of the hammer
candlestick pattern, but with an upside-down appearance.
• The long upper shadow of the inverted hammer candlestick represents the bullish
buying pressure that emerged during the session, pushing the price back up towards
the opening level. This reversal signal suggests that the selling pressure may have
been exhausted, and the market could be poised for a potential trend reversal or a
bullish continuation.
7.Inverted Hammer

• A bearish engulfing pattern suggests that market control has lately been undertaken
by sellers. Furthermore indicating that the number of sellers has exceeded the
number of buyers is a bearish engulfing pattern. Seen on the top of the price chart,
this candlestick pattern is thought of as the possible top of the market.
• The Bearish Engulfing pattern consists of two candles: the first is a smaller bullish
candle, and the second is a larger bearish candle that completely engulfs the body of
the first candle. This formation suggests a shift in momentum from buyers to sellers.
8.Bearish Engulfing

• A bearish harami pattern is a two-candle pattern. A bearish harami pattern results
from a small body (Red) candle developing after a larger body (Green). Usually
showing a possible bearish trend reversal, this pattern appears at the top of the price
chart.
• The bearish harami pattern is a strong bearish signal that suggests the market may
be near a top or a significant high. The large bullish candlestick represents the
buying pressure in the market, while the smaller bearish candlestick that follows
shows the bears gaining control and driving prices lower. To bearish harami, one
compares the bearish engulfing pattern, as both suggest the market may be near a
top or a significant high.
9.Bearish Harami

• The hanging man candlestick pattern is a bearish trend reversal pattern. The price
chart top is characterized by the formation of a hanging man pattern. The candle’s
lower side is characterised by a lengthy wick, while the upper side has minimal to
no wick.
• The hanging man pattern forms when the market is in an uptrend, and a single
candlestick with a long lower wick appears. The candle opens and the price starts to
decline. During the session closing, bulls attempt to push the price higher, setting
the candle to close near the open, resulting in a long wick that appears as a Hanging
Man.
10.Hanging Man

• The bearish kicker pattern is a candlestick pattern where a bullish candle is quickly
followed by a strong bearish candle. The bearish kicker pattern forms when the
bearish candle opens gaps down, breaks and closes below the previous bullish
candle’s low.
• The bearish kicker pattern is formed when the market experiences a sudden and
significant shift in sentiment from bullish to bearish. The initial bullish candle in
the bearish kicker pattern reflects the continuation of the uptrend, but the
subsequent bearish candle that gaps down and closes below the previous low
indicates a strong rejection of the bullish sentiment by the bears. This pattern
suggests a potential reversal of the uptrend.
11.Bearish Kicker

• The shooting star candlestick pattern is a single candlestick bearish reversal pattern.
Shooting star is formed with a single candle which has a long wick at the top and a
small or no body. The shooting star pattern is confirmed after a strong bearish
candle follows the shooting star candle.
• The shooting star pattern is formed when the market experiences a sudden rejection
of the bullish momentum. The long upper wick of the shooting star indicates that
the buyers attempted to push the price higher, but the sellers were able to push the
price back down, creating the long upper wick. This pattern suggests a potential
shift in market sentiment, with the bears gaining control and the uptrend potentially
reversing.
12.Shooting Star

• The three white soldiers candlestick pattern is formed when the market makes three
consecutive bullish candles with higher closes. The three white soldiers pattern is
formed at the bottom of the price chart after a bearish rally.
• The three white soldiers pattern is formed when the market experiences a
significant shift in sentiment from bearish to bullish. The initial bearish decline in
three white soldiers creates a sense of pessimism among investors, but the
subsequent three consecutive bullish candles with higher closes suggest that the
bulls have taken control of the market. This pattern indicates a potential reversal of
the downtrend.
13.Three White Soldiers

• A marubozu candlestick pattern has the potential to be both bullish and bearish. The
morubozu candlestick pattern is achieved when a candle opens at the low or high of
the previous candle and closes at the opposite end without leaving any wicks.
• In a bullish marubozu pattern, the candle opens at the low of the previous candle
and closes at the high, without any wicks. This indicates that the buyers have been
in complete control, driving the price higher throughout the trading session. During
this session, High = Close and Low = Open.
• Conversely, a bearish marubozu pattern, where the candle opens at the high and
closes at the low without any wicks, suggests that the sellers have been in control,
pushing the price lower. During this session, High = Open and Low = Close.
14.Marubozu

• The doji candlestick pattern is characterised by the price of a stock opening and
closing at nearly the same level. Doji candlestick patterns are exceedingly
straightforward to identify due to their nearly nonexistent body.
• The doji pattern is formed when the market is in a state of indecision, with neither
the bulls nor the bears able to gain a clear upper hand. This indecision in the doji
pattern is reflected in the opening and closing prices being almost identical,
resulting in a candlestick with an extremely small or nonexistent body. This pattern
suggests a potential shift in market sentiment and a possible reversal in the
immediate future.
15.Doji

• 1. Uptrend: Higher Highs, Higher Lows
• 2. Downtrend: Lower Highs, Lower Lows
• 3. Sideways Trend: Price Consolidation
Trend Analysis

• Higher Highs (HH) and Lower Lows (LL) help spot market trends.
• Higher Lows (HL) signal a potential trend reversal to the upside when highs finish
higher.
• A Lower High concept (LH) indicates weakening buying pressure and a bearish
trend.
• LL, HH, LH, and HL patterns are used to spot entry and exit market points.
• Fibonacci ratios serve to identify more accurately trend support and resistance.
• Countertrend strategies help profit from short-term corrections but require some
experience.
• Timeframes are key in interpreting these patterns correctly.
• To use these patterns more efficiently, you can combine them with RSI and MACD
indicators.
Key Takeaways

• The market is said to be trending in an upward
trend when the price of a security makes a
series of Higher Highs and Higher Lows
(HH&HL Structure).
Trending markets are easier to spot.

• Support represents a low level a stock price reaches over time, while resistance
represents a high level a stock price goes over time. Support materializes when a
stock price drops to a level that prompts traders to buy. This reactionary buying
causes a stock price to stop falling and start rising. Conversely, resistance
materializes when a stock price rises to a level that prompts traders to sell. This
selling causes a stock price to stop rising and start dropping.
What is Support & Resistance?

• Support: Price level where demand is strong.
• Resistance: Price level where selling pressure
increases.
Support and Resistance

• Double Top
• Double bottom
• Ascending triangle Pattern
• Descending triangle pattern
• Symmetrical triangle
• Rising wedge
• Falling wedge
• Bullish Flag
• Bearish Flag
• ETC
Trend ways patterns

• The double top is a bearish reversal chart pattern that forms after an uptrend and
signals a potential trend change from bullish to bearish. The double top is
characterized by two consecutive peaks that reach approximately the same price
level, separated by a moderate trough.
• The two peaks should form at roughly the same level, indicating strong resistance.
The pattern is complete when the price drops below the support level, known as the
neckline, which is formed by connecting the lowest points of the trough between
the peaks. The double-top pattern reflects a shift in market sentiment from bullish
to bearish. The first peak represents the test of the resistance level, where sellers
start to emerge. The pullback to the trough indicates a temporary recovery before
the second attempt to move higher.
1. Double Top Pattern

• The double bottom is a bullish reversal chart pattern that forms after a downtrend
and signals a potential trend change from bearish to bullish. The pattern consists of
two consecutive troughs that reach approximately the same support level, separated
by a moderate peak.
• Double bottom forms when the price shows signs of rejection from the strong
horizontal support line. The presence of candlestick patterns at the bottom and
signals from additional indicators are gathered to confirm a trade setup.
2. Double Bottom Pattern

• The ascending triangle is a bullish continuation chart pattern that forms during an
uptrend as a consolidation period before further gains. It is characterised by
horizontal resistance. and rising support that converges to form a triangular shape.
• The rejections from the trendline support and certain higher highs before touching
the trendlines are taken as solid indications to go bullish on the trade setup.
However, risk-averse and conservative traders often wait for additional
confirmation. As in the image above, conservative traders will wait for the
horizontal resistance to finally break and retest this broken resistance. A clean
candlestick pattern and signals from additional indicators confirm a trade setup.
3. Ascending Triangle Pattern

• The descending triangle is a bearish reversal chart pattern that forms after an
uptrend and signals a potential trend change from bullish to bearish. The
descending triangle shows a series of lower highs and lower lows, where a
downtrending support line forms the hypotenuse of the triangle and a horizontal
resistance line forms the base. The pattern resembles a downward sloping channel
on the chart
• The rejections from the trendline resistance and certain lower lows before touching
the trendlines are taken as solid indications to go bearish on the trade setup.
4. Descending Triangle Pattern

• The symmetrical triangle is a continuation chart pattern that forms as the price
oscillates between two converging trendlines. The symmetrical triangle indicates a
period of indecision where neither buyers or sellers are in control. The pattern looks
like a coil or a pennant and consists of several key components: the two converging
trendlines, a contraction in volatility, and an eventual breakout from the pattern.
5. Symmetrical Triangle Pattern

• The rising wedge is a bearish pattern that forms when the price rallies between
upward-sloping support and resistance lines that are converging. The rising wedge
pattern has two converging trend lines that connect a series of higher highs and
higher lows, forming a wedge shape that slopes upward as prices rise over time.
The rising wedge in market psychology, reflects the growing disillusionment among
buyers
6. Rising Wedge Pattern

• The falling wedge pattern is a bullish chart pattern marked by lower highs and
lower lows converging towards a single point. The falling wedge appears on the
chart as converging trend lines – a descending upper trendline connecting at least
two lower highs, and an ascending lower trendline connecting at least two higher
lows. This forms a wedge shape that narrows as the trend lines move closer together.
7. Falling Wedge Pattern

• The bullish flag is a continuation pattern that forms when price consolidates in a
downward sloping channel following a strong up move. The bullish flag consists of
a sharp increase in price followed by a consolidation period where the price moves
sideways in a tight range, resembling a flag on the chart.
8. Bullish Flag Pattern

• The bearish flag is a continuation pattern that forms when price consolidates in an
upward sloping channel following a strong downward move. The bearish flag
appears on the chart as a small rectangle or parallelogram that slopes against the
prevailing downtrend. The slope or ‘flagpole’ represents the initial downtrend,
while the flag itself represents a period of consolidation before further downside.
9. Bearish Flag Pattern

• The rounding top pattern is a bearish reversal pattern that signals a potential
downwards breakout. The rounding top pattern is formed when the stock hits a new
high and then begins to consolidate in a rounded arc rather than a sharp peak. The
rounding top pattern on a price chart resembles the shape of a dome.
10.Rounding Top Pattern

• The Rounding Bottom is a reversal pattern that signals a transition from a
downtrend to an uptrend. The rounding bottom pattern in chart analysis resembles a
“U” shape, with the price trending downwards initially, reaching a trough, and then
reversing to trend upwards again.
11.Rounding Bottom Pattern

• The Island Reversal is a powerful trend reversal pattern that forms after an extended
trend. The island reversal pattern structure on a chart appears as a gap down in
prices followed by a contained trading range of higher highs and higher lows that
resembles an island shape, culminating in a gap up breakout above the range.
• For bullish island reversals, as in the example above, it consists of a gap down
followed by a consolidation known as an island. Price gaps up and closes above the
previous gap down, indicating an aggressive shift of momentum from bearish to
bullish sentiment. Such patterns are traded aggressively at the close of the gap up
candle, assuming that the trend is likely to continue on the upside without any
further consolidation.
12.Island Reversal Pattern

• A cup and handle pattern is a bullish technical analysis pattern that is identified by a
U-shaped trough followed by a slight pullback and then a rise, resembling a cup
with a handle. The cup and handle pattern is formed by a drop in a security’s price
followed by a rise back toward the prior peak, which forms the cup shape, and then
a smaller drop and rise, which forms the handle.
• This pattern indicates a continuation pattern, suggesting the prior uptrend will
resume after consolidation in the form of the handle.
13.Cup & Handle Patterns

• Channel patterns are technical chart formations that illustrate the movement of a
security’s price oscillating within a parallel upward and downward trend. The upper
and lower boundaries create a visual channel that contains the price action over a
specified timeframe. The upper trendline connects the highs, while the lower
trendline connects the lows of the price bars. See the image below.
• This structure reflects consolidated trading activity confined between support and
resistance trendlines. To form a channel, one must connect atleast two price points
that are reacting to the trendline support and resistance. These points are
extrapolated to form a channel.
14.Channel Patterns

• The pipe bottom is a bullish reversal pattern that signals a potential trend change
from bearish to bullish. The pipe bottom consists of two troughs at roughly the
same low level, with a higher peak in between.
• The pipe bottom reflects a shift in market psychology from fear to greed. After
falling to a new low, sellers are unable to maintain control and prices bounce up.
Buyers take charge after the second trough, initiating the new uptrend. The pattern
shows a strengthening bullish sentiment.
15.Pipe Bottom Pattern

• Technical indicators use mathematical
formulae to compute certain values which can
be used to identify bullish and bearish trends in
the market. These have been discussed in this
chapter
Indicators.

• Volume
Ø Accumulation/Distribution
Ø On Balance Volume
Ø Price and Volume Trend
• Trend
Ø Bollinger bands
Ø Moving Averages
• Oscillator
Ø MACD
Ø RSI
Ø Stochastic
Indicators

• Volume confirms trends.
• High volume on breakout = Strong movement.
• Low volume = Weak movement.
Volume Analysis

• Determined by the changes in price and volume
• Volume acts as a weighting coefficient at the change of price
• Increase => Accumulation (buying) of security, => Upward trend of prices
• Decreases =>Distribution (selling) of security, => Downward price
movement
Accumulation Distribution

• JoeGranvilleintroducedOnBalanceVolume(OBV)indicator
• Measurepositiveandnegativevolumeflow
• Concept:Volumeprecedesprice
• Risingvolumecanindicatethepresenceofsmartmoneyflowingint
oasecurity
• NumericalvalueofOBVisnotimportant,butdirectionoftheline
• Calculation
• OBV=Yesterday'sOBV+Today'sVolume
• OBV=Yesterday'sOBV-Today'sVolume
• Linecanthenbecomparedwiththepricechartoftheunderlyingsecu
ritytolookfordivergencesorconfirmation
On Balance Volume

• Growing sum of values of the trade volume calculated
regarding the change of closing prices
• A part of the current volume is added or subtracted
• Depends on the movement of price in respective time period
• PVT is considered more precise than OBV in showing the
dynamics of trade volume
• Trend matters more than value
• Calculation
Price and Volume Trend

• Bollinger Bands consist of a middle band with two outer bands
• A simple moving average forms the middle line
• They are two standard deviations above and below the moving average
• Buy signal => Price closes below lower band, and
• Sell signal=> Price closes above the upper band
• Assumes that prices cant move beyond outer bonds
• Bands contract => big move is coming, but not sure whether up or down
• Bands should contain 88-89% of the price action
Trend-Bollinger Bands

• Relative Strength Index (RSI) – Measures
Overbought/Oversold
• MACD – Identifies Trend Reversals
• Stochastic Oscillator – Measures Momentum
Momentum Indicators

• Candlestick charts are combined with moving averages to identify support and
resistance, indicators like RSI to confirm overbought/oversold conditions, and
Bollinger Bands to highlight volatility.
• The incorporation of moving averages into a candlestick chart facilitates the
identification of dynamic support and resistance levels. According to a study by the
Technical Analysis Society of America (TASA), combining candlestick patterns
with moving averages and momentum indicators improved trade accuracy by an
average of 20-25% across various markets and timeframes.
• Volume-weighted average price (VWAP) is another useful indicator that traders
often use with candlesticks to identify intraday support and resistance levels. The
Relative Strength Index (RSI) is a popular indicator that is used in conjunction with
candlestick patterns to verify overbought or oversold conditions. Indicators such as
Bollinger Bands are often employed in conjunction with candlesticks to identify
periods of high or low volatility.
How to Combine Candlesticks with Other Technical Indicators?

• Always set Stop-Loss orders.
• Follow proper Risk-Reward Ratio (1:2 or
better).
• Avoid overtrading.
Risk Management

• Trend Following Strategy
• Breakout Trading
• RSI + Moving Average Strategy
Trading Strategies

• Trading without a plan.
• Overleveraging positions.
• Ignoring risk management.
Common Mistakes to Avoid

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