BCA SEMINAR 040207[1].Ppt Manish Chokshi

TECHNICAL ANALYSIS OF STOCK TRENDS

PRESENTED BY CA MANISH R. CHOKSHI

INTRODUCTION TO TECHNICAL ANALYSIS - BASIC PRINCIPLES, PHILOSOPHY , SCOPE & OBJECTIVE WHAT IS TECHNICAL ANALYSIS ?

Technical analysis is an organized and systematic study of market action through use of charts, of a particular script or index for the purpose of identifying trend changes at an early stage with the help of price and volume data of any share or index. Technical analysis is basically studying the price action or behaviour only . There is a Chinese proverb which says : A single picture speaks more than a 1000 words

TECHNICAL STUDY IS AN ART AND EMPIRICAL SCIENCE AS WELL

Technical study remains more as an art . At best it can be considered as an empirical science wherein judgment plays an important role in successful performance of the science.

BASIC ASSUMPTIONS OF TECHNICAL ANALYSIS

Price discounts everything. Price is supreme. The price which of any script is the result of all the factors affecting it , which are far reaching and to narrate a few it may be MICRO FACTORS :-the industry prospects to which the company belongs or the performance of the company or the management of the company, brand image of the company , monopolistic element , competitors strength , financial strength and in country like India political strength may too play an important role in determining the price of particular script.


MACRO FACTORS:- Political condition ( to which ours like markets are too sensitive ) , economic health of the country, , climatic conditions , even nuclear blasts or who is the finance minister .


Market moves in trend and when established remains in force until there is evidence of change. Market has Rhythm . It moves in trend and hence it is possible to interpret, the market, since history repeats because human nature does not change .The market moves are cyclic and repetitive, The market does not move in random.. Once the trend is set it continues in that direction and before reversing its direction it will give proper signals indicating change of trend .

BASIC ASSUMPTIONS OF TECHNICAL ANALYSIS00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)

4548

1- MARKET MOVES IN RYTHM

3209June July August September October November December 1998 February

4700 4650 4600 4550 4500 4450 4400 4350 4300 4250 4200 4150 4100 4050 4000 3950 3900 3850 3800 3750 3700 3650 3600 3550 3500 3450 3400 3350 3300 3250 3200 3150 3100 3050


Market action is repetitive : The charts patterns are repetitive , hence one can interpret the future behaviour of the price, e.g. Head and Shoulder pattern is bearish formation and on break out from such pattern prices can be expected to fall. This is because human nature tends to react to similar situations in consistent ways.


Market discounts future : We usually see , when the good news for a particular scrip is announced , the price of that script falls The reason is , market has collective intelligence , which is supreme Only market can foresee not any single individual Teji starts when there is no hope and all is bad around you. So Teji starts in gloom and Mandi starts in Boom.


Technical Analysis is an Art. It is based on past observation. Technical analysis is workable in any free market economy Technical Analysis is complete tool in itself Market is usually ahead of news Do not marry any script Do not buy on news. Do not buck the trend. Do not buy because prices are low or sell just because the prices are high The wise & intelligent can foresee the market

BASIC DEFINITIONS/TERMINOLOGY:

Line Chart :- Chart drawn on the basis of daily closing prices of each script. Bar Chart :- Open High Low Close Bar for each day Volume :- The number of shares traded during a trading session . Stop Loss: When a trader enters into any long /short position it is necessary for him to determine the stop loss level and to book loss if the market moves against him A price chart is a pictorial presentation of price movement by plotting price on Y axis and date on Xaxis .. Speculation and Gambling : - Speculation is generally a dirty word in stock market and usually misunderstood. Speculation is intelligent reasoning of mind. Speculation is not equal to gambling .

LINE CHART Connects the closing prices of a scrip.

BAR CHART OPEN HIGH LOW CLOSE

DOW THEORY

The Dow theory is the grandfather of all technical studies. Mr. Charles H. Dow is the inventor of technical analysis. Following are the Tenants of Dow Theory The Market (Price) Discounts Everything The Three Trends :

Primary trends cannot be manipulated; it would train the resources of the Apex bank of any country. The price movement can be compare with ocean waves.

The Primary Trends :The Secondary Trends :The Minor Trends :-

DOW THEORY- PRIMARY, SECONDARY AND MINOR TREND00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)

uplsoping trendline

4200 4150 4100 4050 4000 3950 3900 3850 3800 3750 3700 3650 3600 3550 3500 3450 3400 3350 3300 3250 3200 3150 3100 3050 3000 2950 2900 2850 2800 2750

December

1996

February

March

April

May

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July

August

IMPORTANT REVERSAL & CONTINUATION PRICE PATTERNS

HEAD & SHOULDER REVERSAL PATTERN

HEAD & SHOULDER REVERSAL PATTERN00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)

head left shoulder

right shoulder

neckline

4200 4150 4100 4050 4000 3950 3900 3850 3800 3750 3700 3650 3600 3550 3500 3450 3400 3350 3300 3250 3200 3150 3100 3050 3000 2950 2900 2850 2800 2750 2700 2650 2600 September November

December 1996

February March

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HEAD AND SHOULDER PATTERNRULES OF RECOGNITION.

It is a MAJOR reversal pattern and one of the most reliable one.The head and shoulder pattern appearance signifies reversal of bull market and hence a valid pattern is seen at the top of the market LEFT SHOULDER:- A strong rally , on which trading volume becomes very heavy, followed by a minor recession on which volume runs considerably less than it during the days of rise .This is the LEFT SHOULDER.

HEAD AND SHOULDER PATTERNRULES OF RECOGNITION

HEAD: Second high volume advance which reaches a higher level than the top of the left shoulder , and then another reaction on less volume which takes prices down to somewhere near the bottom level of the preceding reaction but lower than the left shoulder top, which is the first sign of weakness . This is the HEAD. RIGHT SHOULDER :- A third rally , on less volume (compared to the left shoulder or head) which fails to reach the head before another decline starts and the prices come down near to the bottom of the left shoulder and head. This is the RIGHT SHOULDER.


D:- FINALLY :- The decline from the right shoulder which breaks the neckline and when the prices go below it , it completes the Head and Shoulder pattern signifying end of a major bull run


i. Volume behavior is very important . A head and shoulder pattern not following the rules of volume may not be reliable. ii.Neckline :- It is the line drawn across the bottoms of reactions between the left shoulder, head and right shoulder.


iii. Breaking the neckilne : The breach of neckline should occur with force (volume plays very important role here). A technical analyst should be alert and if the prices tends stay around the neckline and the downfall is not intensified , there is a chance that the pattern may fail and prices may start to rise again. iv. Rising of Falling Neckline : A horizontal neckline is ideal but even rising or falling neckline can make a successful pattern iv. Rising of Falling Neckline : A horizontal neckline is ideal but even rising or falling neckline can make a successful pattern.


v. Multiple Head and Shoulder: This is one variation of the pattern , whereby there are multiple left/right shoulder. Generally the number of left and right shoulders would be equal. This pattern is famous for its amazing symmetricity. vi. The top price of left and right shoulders may (and usually are) not be equal

HEAD AND SHOULDER PATTERNRULES OF RECOGNITIONvii. The Measuring Formula or Target :- In order to

determine the minimum objective of the decline draw a vertical line from the top of the HEAD to the neckline and reduce the number so derived from the point at which the price has cut the neckline after completing the right shoulder . vii. Inverted Head & Shoulder :- It is just the reverse of Head and Shoulder pattern . The inverted Head & Shoulder pattern appearance signifies beginning of a major bull run after its breakout from neckline. vii. Pull Back Action : After crossing the neckline , the price comes back and touches the neckline , this is called as pull back action.

HEAD & SHOULDER REVERSAL PATTERN

CONTROVERSIAL DECISION OF UTI IN BUYING RELIANCE01Reliance (F&O)

head left shoulder right shoulder

220 215 210 205 200 195 190 185

neckline

180 175 170 165 160 155 150 145 140 135 130 125 120 115 110

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February

HEAD & SHOULDER REVERSAL PATTERN03Hero Honda (F&O) (400.0, 420.1, 399.0, 412.0)

HERO HONDA HEAD & SHOULDER - BULLISH PATTERN

minimum target =390

400

350

neckline right shoulder left shoulder

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head150

100 O N D 2001 M A M J J A S O N D 2002 M A M J J A S O N D 2003 M A M J J A S O N D 2004

ROUNDING TOP AND ROUNDING BOTTOM FORMATIONReckitt & Colman

ROUNDING TOP FORMATION

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ROUNDING TOP AND ROUNDING BOTTOM FORMATION00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541) 4400 4300 4200 4100 4000 3900 3800 3700 3600 3500 3400 3300 3200 3100 3000 2900 2800 2700 Dec 1998 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1999 Feb Mar Apr

ROUNDING BOTTOM FORMATION

ROUNDING TOP AND ROUNDING BOTTOM FORMATION RULES OF RECOGNITION

Rounding Top formation is a phenomenon of gradual distribution of stocks , over a period of time and is a major reversal pattern which appears at market top and has bearish implication ROUNDING BOTTOM :- Rounding Bottoms are commonly referred to as BOWL OR SAUCER patterns . The Rounding bottom pattern appears at the bottom of the market and has bullish implications

TRIANGLES (USUALLY CONTINUATION PATTERN):

THERE ARE THREE TYPES OF TRIANGLES :

SYMMETRICAL TRIANGLES ASCENDING TRAINGLES DESCENDING TRAINGLES

SYMMETRICAL TRIANGLES02IPCL (F&O) (217.5, 219.5, 214.1, 215.4)

190 180

2 4

SYMMETRICAL TRIANGLE AREA OF DOUBT

170 160 150 140 130 120

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Volume (350,101)

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SYMMETRICAL TRIANGLES RULES OF RECOGNITION

. It is formed by the price movement such that the successive tops are lower than the predecessor top , and it fails to attain the height of the preceding rally and the successive bottoms are higher than the preceding bottom . 2. The lower tops can be connected by down sloping line and the higher bottoms can be connected by upsloping line , thus forming a geometric triangle.


3. The area of triangle is called as Area of Doubt /Area of Congestion . 4. The volume diminished within the triangle 5. Finally the prices breakout from the triangle with significant pickup in volume . The trend picks up in the direction of the breakout. The formation of Triangle suggests that the market is uncertain at the moment it is looking for direction . Generally ( but not necessary ) the breakout is in the direction of the long term trend , hence the triangles are termed as continuation patterns.


6. The center of the triangle is called as the Apex. 7. For a valid Triangle formation there should be two alternate tops and two alternate bottoms . Hence it has four touch points , two touch points on sown sloping line and two on the upsloping line . 8. For an effective price movement the breakout should occur at a point somewhere between three & half quarters of the horizontal distance from the base to the apex. The price movement may be less effective if the breakout occurs near the point of apex.


9. Quite often pull back action is seen after the price breakout which means that the prices pull back to touch the boundary lines (either the upsloping or the down sloping boundary lines depending on the direction of the breakout.) or even to the Apex. 10. Minimum Price Target : The minimum price target can be calculated once the prices breakout of a Triangle. Draw a vertical line from the point of rally to the bottom boundary and measure its points in terms of price . The minimum target price will be the same number of points measured from the point of breakout.

SYMMETRICAL TRIANGLES00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)

SYMMETRICAL TRIANGLE ON BSE6000

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ASCENDING - RIGHT ANGLE TRIANGLE01Ranbaxy (F&O) (1,119.7, 1,133.0, 1,108.3, 1,124.3) 1150 1100 1050 1000 950 900 850 800 750 700 650 600 550 Volume (257,083) 50000x10

RANBAXY ASCENDING TRAINGLE BULLISH PATTERN

February March

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2004

ASCENDING - RIGHT ANGLE TRIANGLE RULES OF RECOGNITION

This pattern is the cousin of Symmetrical triangle . The Ascending triangle is usually a bullish pattern , since it takes support at higher levels. All the rules of construction of this pattern are same as Symmetrical Triangle . The only difference is , instead of the upsloping boundary line we have almost horizontal boundary line. Usually the breakout is in the upward direction from the horizontal boundary line.

DESCENDING - RIGHT ANGLE TRIANGLE03Nat.Alum. (F&O) (179.50, 180.35, 174.10, 176.20) 55

DESCENDING TRIANGLE50

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15 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1998 Feb Mar Apr May Jun Jul

DESCENDING - RIGHT ANGLE TRIANGLE

RULES OF RECOGNITION

This pattern is the cousin of Symmetrical triangle . The Descending triangle is usually a bearish pattern. All the rules of construction of this pattern are same as Symmetrical Triangle . The only difference is , instead of the down sloping boundary line we have almost horizontal boundary line. Usually the breakout is in the downward direction from the horizontal boundary line . In fact the formation of an Ascending/Descending triangle gives an advance warning to the trader about the direction of the breakout .

MORE TRIANGLES01HDFC (F&O ) (618.0, 622.0, 611.0, 615 .8)

T RIANGLES ON HDFC

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RECTANGLES01Cipla (F&O) (1,225.0, 1,293.0, 1,216.5, 1,278.7) 1350 1300 1250

RECTANGLE ON CIPLA

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RECTANGLES01Infy (F&O) (5,082, 5,325, 5,060, 5,256) 9000 8500 8000 7500 7000 6500 6000 5500 5000 4500 4000 3500 3000 2500 2000 2000 A M J A S O N D 2001 A M J J A S O N D 2002 9000 8500 8000

INFOSYS- WEEKLY LINE CHART

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Channel Trendlines / Rectangle

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* = breakout from channelA M J J A S O N D 2003 A M J J A S O N D 2004 A M

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RECTANGLES


A Rectangle consists of price movements between two parallel boundaries (horizontal lines) , which may be called as Trading Area . A slightly sloping lines may be considered to be a valid Rectangle. The formation of a Rectangle suggests balance in the market.

RECTANGLES

RULES OF RECOGNITIONThe price movement between the two boundaries also suggests perfect balancing of force of the two opposite groups , the bulls and the bears. Ultimately the strong party kicks off the ball out of the rectangle , which we call as breakout, and the trend picks up in the direction of the breakout .The volume diminishes as the price moves within the rectangle and it picks up after the breakout. Quite often we see a pull back action which brings the prices back to touch the boundaries. Rectangles appear more frequently at the bottom rather than at the top.

RECTANGLES


Measuring implication:-The minimum target is given by the width of the rectangle . The prices can be expected to go us much points from the boundary of breakout as the distance between the two boundaries. Appearance of Rectangle is relatively rare.

DOUBLE AND TRIPLE TOPS & BOTTOMS (MAJOR REVERSAL PATTERN):01ITC (F&O) (1,020.0, 1,020.0, 980.3, 986.5)

DOUBLE TOP

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DOUBLE BOTTOM

01ACC (F&O) (230.5, 234.0, 229.0, 230.6)

DOUBLE BOTTOM FORMATION

B1Apr May Jun Jul Aug Sep Oct Nov

B2Dec 1999 Feb Mar Apr May Jun

200 195 190 185 180 175 170 165 160 155 150 145 140 135 130 125 120 115 110 105 100 95 90 85 80 75 70 65 60

DOUBLE TOP/BOTTOMRULES OF RECOGNITION

1.The prices of the script rises to a certain level with high volume and then recedes with lower volume . Again activity picks up and the prices starts rising with high volume , and reaches almost the same level , but this time the volume is relatively lower as compared to the first top, thereafter the prices starts declining .Double bottom is the same picture but upside down and having reverse implication. In case if two tops are formed very close to each other there is a suspicion that it may not be double top .

DOUBLE TOP/BOTTOMRULES OF RECOGNITION

2.For a reliable pattern there should be time lag of 3 to 4 weeks between the tops and the prices reduces by 20 % of the top value .The time element is more important than the price decline for the formation of a reliable double top. 3.Double Tops and bottoms are primarily reversal phenomenon. The double top is said to be confirmed when the price breaks the bottom of the valley (formed at the time of first decline ) and a technical analyst should take position only after the price breaks the point of valley and not in anticipation . 4. Double Tops are called as M formations and Double bottom are called as Wformations

THE BROADENING FORMATIONITC Ltd (1,020.0, 1,020.0, 980.3, 986.5)

BROADENING - BEARISH PATTERN

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15000 10000 5000 x1000 22 29 5 1998 12 19 27 9 16 February 23 2 9 March 16 23 30 6 April 13 20 27 12 18 May 25 1 8 June 15 22 29 July

THE BROADENING FORMATION RULES OF RECOGNITION

1.The boundaries of the Broadening Formations widen out and diverges from each other. It is just reverse of a Triangle and hence often referred to as the Inverted Triangles . The Broadening Formations suggests a market lacking intelligent sponsorship and out of control . They are bearish in purport suggesting that the situations is nevertheless approaching dangerous stage. They appear most often at or near an important topping out of trend. 2. The volume is high and erratic , making the whole picture - price and volume both , one of wild and apparently unintelligent swings

THE BROADENING FORMATION RULES OF RECOGNITION

3. The market is expected to move in the direction of the breakout , usually downwards. 4. There are no broadening Bottom formation . This pattern is typically seen at the top. 5. Like in all other patterns one should trade only when prices breakout from the pattern.

THE DIAMONDABB

DIAMON PATTERN

490 480 470 460 450 440 430 420 410 400 390 380 370 360 350 340 330 320 310 300 290 280 270 260 250 240 230 220 210 Mar Apr May Jun Jul

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THE DIAMONDRULES OF RECOGNITION

1.As the name suggests the shape of the formation is like diamond. The diamond reversal pattern might be described either as a complex Head & Shoulders with a V shaped neckline OR as a Broadening formation which goes furthur to form a Symmetrical Triangle . It is not a common pattern. 2. It rarely occurs at the bottom as its natural habitat is major tops , and it is a Major reversal pattern usually at the top.

THE WEDGE - FALLING WEDGE -RISING PRICESNestle (India) (642.0, 652.0, 641.1, 650.1) 350 345 340 335 330 325 320 315 310 305 300 295 290 285 280 275 270 265 260 255 250 245 240 235 230 225 220 215 210 205 200 1998 February March

FALLING WEDGE - RISING PRICES

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THE WEDGE - RISING WEDGE FALLING PRICESBSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)

RISING WEDGE - FALLING PRICES

4800 4700 4600 4500 4400 4300 4200 4100 4000 3900 3800 3700 3600 3500 3400 3300 3200 3100 3000 2900 2800 2700 2600 2500 2400 2300 2200 2100 2000 1900 Sep Oct Nov Dec

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THE WEDGE RULES OF RECOGNITION

1. The wedge is chart formation in which the price fluctuations are confined within converging boundaries and both the boundaries are either upsloping are downsloping .The wedge formation which is made up of rising upsloping boundaries is called as Rising Wedge and the now with downsloping boundaries is called as falling wedge. The Rising Wedge has bearish implication and the Falling Wedge has bullish implication .

THE WEDGE RULES OF RECOGNITION

2. When the prices breakout from the Rising Wedge , the prices go down and when the prices breakout from the falling wedge the prices go up.The Wedge formation are usually not Major Trend reversal. However classic wedges are seen right at the top of the market acting as a major trend reversal , as seen on BSE 30 in Sept 94 . 3. The volume diminishes as the prices gradually moves towards the apex of the wedge.

FLAGS CONTINUATION PATTERN ONLYDabur India Ltd (86.50, 91.80, 86.25, 91.05) 95 90

FLAG FORMATION

85 80 75 70 65 60 55 50 45 40 35 30

Volume (796,784)

10000 5000x100

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2004

THE PENNANT - A POINTED FLAGGreat Eastern Shipping (142.5, 144.8, 140.6, 141.7) 140 135 130 125 120 115 110 105 100 95 90 85 80 75 70 65 60 55 50 45 2003 February March April May June July August September November 2004

PENNANT FORMATION

FLAGS & PENNANT RULES OF RECOGNITION

1. A Flag looks like a flag on the chart . It can be described as a small compact parallelogram of price fluctuations or tilted rectangle which slopes back moderately against the trend . Flags appearing like downsloping rectangle are seen in an uptrend while upsloping flags are seen in an downtrend. 2. The volume shrinks markedly and constantly as the pattern develops .


3. The flag should occur after a straight line move , and looks like half mast since it develops almost in the middle of the trend. 4. Usually the time taken within the flag is 3 to 4 weeks i.e the price should break out within four weeks time . Any pattern which extends beyond 4 weeks should be watched with suspect. 5. The flag is a Continuation pattern only .


6. The minimum measuring implication:The price is expected to reach at least the same number of points from the breakout as measured from the bottom of the trend from where the trend begin , till the point from where the flag started to form . 7.The flags rarely fail in their implication . They are most dependable patterns.

COMMON FACTORS WITH ALMOST ALL PATTERNS

1. Trade only in the direction of breakout and not in anticipation . 2. Usually prices will pull back on to the upper side of boundaries. 3. Volume Shrinks during within the pattern. 4. There are minimum four to five points of contact at the boundaries .

GAPS

A gap is a chart pattern that consists of two adjacent bars , where the low of one bar is higher than the high of the previous bar. It shows that no trades took place at a certain price . Gaps occur when prices jump in response to a sudden imbalance of demand and supply . All gaps can be divided into four major groups 1. Common gaps 2. Breakaway gaps 3. Continuation gaps 4. Exhaustion gaps. One needs to identify them since each of them has different implication and calls for different trading tactics.

BREAKOUT GAPSBSE Sensex 30 C (5,487, 5,556, 5,487, 5,541) 3850 3800 3750 3700 3650 3600 3550 3500 3450 3400 3350 3300 3250 3200 3150 3100 3050 3000 2950 2900 2850 2800 2750 2700 2650 2600 2550 2500

*

* = Breakaway Gap

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CONTINUATION AND EXHAUSTION GAPSBSE Sensex 30 C (5,487, 5,556, 5,487, 5,541) 4400 4350 4300 4250 4200 4150 4100 4050 4000 3950 3900 3850 3800 3750 3700 3650 3600 3550 3500 3450 3400 3350 3300 3250 3200 3150 3100 13 20 27 4 12 May 18 25

* = Exhaustion Gap

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* = Continuation Gap

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ISLAND REVERSAL03Wipro Ltd (F&O) (1,690, 1,711, 1,674, 1,700) 10500 10000 9500 9000

ISLAND REVERSAL

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TRENDLINES

AS we have understood so far that prices move in Trends , and amazingly and quite frequently the Primary as well as secondary trends appear on the charts as though their courses had been plotted with a straight edge ruler . This phenomenon is in truth the most fascinating , impressive and mysterious of all the stock charts . How To Draw Trendlines : In an uptrend the trend line(s) ( straight line) is drawn connecting the bottom tips while in an downtrend the trendline is drawn connecting the upper tips of the swing. Trendlines can be drawn connecting tips of Primary or Secondary or Minor Swings having the same time frame implication.

TRENDLINES00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541) 4200 4150 4100 4050 4000 3950 3900 3850 3800 3750 3700 3650 3600 3550 3500 3450 3400 3350 3300 3250 3200 3150 3100 3050 3000 2950 2900 2850 2800 2750

uplsoping trendline

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TRENDLINES

02Colgate (158.4, 159.4, 155.5, 156.1)

390 380 370 360 350 340 330 320 310 300 290 280 270 260 250 240 230 220 210 200 190 180 170 160 150 140

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TRENDCHANNELS03IOC (F&O) (440.0, 443.0, 428.5, 433.0)

Channel Trendline

minimum target=475

*

* = point of breakout.

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TRENDCHANNELS00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541) 4700 4650 4600 4550 4500 4450 4400 4350 4300 4250 4200 4150 4100 4050 4000 3950 3900 3850 3800 3750 3700 3650 3600 3550 3500 3450 3400 3350 3300 3250 3200 3150 3100 3050 Feb Mar Apr May Jun

TREND CHANNEL

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SUPPORT & RESISTANCE

The support price means the floor price at which the falling prices take support and bounces back from that level , and resumes its upward journey .Similarly Resistance is the roof where the prices hit and retraces and fall backs perhaps to take support at lower levels. There are various support/resistance levels which are described hereunder ;

The previous important tops/bottoms acts as important support/resistance or resistance/support levels The falling prices may take support at rising moving average , may be 30 days moving average or 200 days moving average and so on . Similarly the rising prices may face resistance at falling moving averages. The trendlines act as important support & resistance levels

FIBONACCI STUDIES

FIBONACCI RETRACEMENTS :Fibonacii Retracement levels are displayed by first drawing a trendline between two extreme points. ( i.e. a significant trough and peak ) . The Fibonacii levels are drawn at the Fibonacci levels of 0.0% , 23.6 % , 38.2 % , 50.0 % , 61.8 % ,100% , 161.8 % , 261.8 % and 423.6 %

MOVING AVERAGES

A moving average is a statistical device which smoothens out the erratic price fluctuations and gives us a smooth curve indicating the direction of the trend .A moving average (MA) shows the average value of data in its time window. A 5-day MA shows the average price for the past 5 days, a 20 day MA shows the average price for the past 20 days, and so on. TYPES OF MOVING AVERAGE :There are three main types of moving averages: simple, exponential, and weighted.

MOVING AVERAGES00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541) 4400 4350 4300 4250 4200 4150 4100 4050 4000 3950 3900 3850 3800 3750 3700 3650 3600 3550 3500 3450 3400 3350 3300 3250 3200 3150 3100 20 27 May 12 18 25 1 8 June

30 DAYS EXPONENTIAL MOVING AVERAGE

22

29

5 1998

12

19

27

9 February

16

23

2 9 March

16

23

30 6 April

13

MOVING AVERAGESTRADING RULES :Moving averages help us to trade in the direction of the trend. The single most important message of a moving average is the direction of its slope. It shows the direction of the markets inertia. 1. When an MA rises, trade that market from the long side.Buy when prices dip near or slightly below the moving average.The market gets support on a rising moving average.

MOVING AVERAGES

2. When the MA falls, trade that market from the short side.Sell short when prices rally Toward or slightly above the MA.The market faces resistance at falling moving average. 3. When the MA goes flat and only wiggle a little,it identifies a aimless, trendless market.

MOVING AVERAGE CONVERGENCE DIVERGENCE - MACD (26 X 12)MACD (141.5) 100 50 0 -50 -100

00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)

4300 4200 4100 4000 3900 3800 3700 3600 3500 3400 3300 3200 3100 20 27 May 12 18 25 1 8 June

22

29

5 1998

12

19

27

9 February

16

23

2 9 March

16

23

30 6 April

13

MACD

TRADING RULES :Crossovers between MACD and Signal lines identify changing market tides. Trading in the direction of a crossover means going with the flow of the market. 1. When the fast MACD line crosses above the Signal line, it gives a buy signal. 2. When the fast line crosses below the slow line, it gives a sell signal. Go short

MOMENTUM INDICATORS

INTRODUCTION :Oscillators identify the emotional extremes of market crowds. When greed or fear grips a mass of traders, the crowd surges Oscillators measure the speed of the surge and track its momentum. If a ball is thrown up, when it leaves your hand it has the, highest speed , when it goes still furthur up though it continues to go up it goes with a lower speed , and it has the lowest speed at the top , and then it takes turn and starts falling down. .Oscillators allow you to find unsustainable levels of optimism and pessimism

MOMENTUM INDICATORS

TRADING RULES :

OVERBOUGHT AND OVERSOLD ZONES DIVERGENCES

RATE OF CHANGE - ROC

For example - a 7 days Momentum of closing prices equals todays closing price minus the closing price 7 days ago, Momentum is positive if todays price is higher ; negative if todays price is lower ; and at Zero if todays price equals the price of 7 days ago. The slope of the line connecting momentum values for each day shows whether momentum is rising or falling.The number of days will depend on the trading time frame defined by the trader. Standard ROC days are 5, 7, 12, and 24. It can be expressed in the form of Percentage also.

RATE OF CHANGE ROC - Over Bought & Over Sold Zone and Trading on DivergencesPrice ROC (12.82) 30

NEGATIVE DIVERGECNES

OVERBOUGHT AREA

25 20 15 10 5 0 -5 -10

OVERSOLD AREA00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)

-15 -20 4500

4000

3500

3000

J

A S

O N

D 1996

M A

M

J

J

A

S

O

N

D 1997

M

A

M

J

J

A S

O

N

D

1998

M A

RELATIVE STRENGTH INDEXRSI fluctuates between 0 and 100 Overbought and oversold levels vary from market to market and from year to year There are no magical levels marking all tops and bottoms Oversold and overbought signals are like hot and cold reading on a thermometer. The same temperature has a different meaning in summer or in winter. Horizontal reference lines must cut across the highest peaks and the lowest valleys or RSI They are often drawn at 30 and 70 Some traders use 40 and 80 levels in bull markets or 20 and 60 in bear markets .The time span selected for RSI may be 5 days, 9,14 ..... depending upon the time frame in which a trader is trading i.e Short term or medium term or long term.

RELATIVE STRENGTH INDEX

TRADING RULES :Bullish and Bearish Divergences Divergences between RSI and price gives the strongest buy and sell signals. They tend to occur at major tops and bottoms . They show when the trend is weak and ready to reverse. Overbought & Oversold Zones

RELATIVE STRENGTH INDEXnegative divergenceRelative Strength Index (77.25) 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15

positive divergence00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)

4500

4000

3500

3000

J

A S

O N

D 1996

M A

M

J

J

A

S

O

N

D 1997

M

A

M

J

J

A

S

O

N

D

1998

M

A

STOCHASTICStochastic Oscillator (95.64)

negative diergence

overbought area

90 80 70 60 50 40 30 20

oversold area00BSE Sensex 30 C (5,487, 5,556, 5,487, 5,541)

10 6000

5500

5000

4500

4000 September October November December 2000 February March April

SUPPORT & RESISTANCE

The support price means the floor price at which the falling prices take support and bounces back from that level , and resumes its upward journey .Similarly Resistance is the roof where the prices hit and retraces and fall backs perhaps to take support at lower levels. There are various support/resistance levels which are described hereunder ;

The previous important tops/bottoms acts as important support/resistance or resistance/support levels The falling prices may take support at rising moving average , may be 30 days moving average or 200 days moving average and so on . Similarly the rising prices may face resistance at falling moving averages. The trendlines act as important support & resistance levels

JAPANESE CANDLESTICKBASIC DEFINATION

THE BODY : The box that makes up the difference between the open and close is called as the real body of the candlestick . The height of the body is the range between the days open price and the days close price . When the body is black , it means that the closing prices was lower than the opening price . When the closing price is higher than the opening , the body is white.

JAPANESE CANDLESTICKBASIC DEFINATION

THE SHADOWS : The Japanese candlestick line may have small thin lines above and or below the body. These lines are called shadows and represent the high and low prices reached during the trading day. The upper shadow represent the high price and the lower shadow represents the low price.

JAPANESE CANDLESTICK BEARISH ENGULFING PATTERNBEARISH ENGULFINGA C C Ltd. 283 282 281 280 279 278 277 276 275 274 273 272 271 270 269 268 267 266 265 264 263 262 261 260 259 258 257 256 255 254 253 252 251 250 249 248 247 246 245 244 243 242 241

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27

1 March

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15

16

JAPANESE CANDLESTICK BULLISH ENGULFING PATTERNGrasim Inds. Lt 320 315 310 305 300 295 290 285 280 275 270 265 260 255 250 245 240 235

BULLISH ENGULFING PATTERN9 12 13 14 15 16 19 20 21 22 23 26 27 28 29 30 2 April 3 4 6 9 10 11 12 16 17 18 19 20 23

230 225

JAPANESE CANDLESTICK SHOOTING STARGrasim Inds. Lt 1225

SHOOTING STAR

1220 1215 1210 1205 1200 1195 1190 1185 1180 1175 1170 1165 1160 1155 1150 1145 1140 1135 1130 1125 1120 1115 1110 1105 1100 1095 1090 1085 1080 1075 1070 1065 1060 1055 1050 1045 1040 1035

3 February

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1030

JAPANESE CANDLESTICK HAMMER (BULLISH) & THREE BLACK CROW(BEARISH)Grasim Inds. Lt 1250

BEARISH ENGULFING

1240 1230 1220 1210 1200

THREE BLACK CROW

1190 1180 1170 1160 1150 1140 1130 1120 1110 1100 1090 1080 1070

HAMMER

1060 1050 1040 1030 1020 1010 1000 990 980 970 960 950

16

23

1 March

8

15

22

29 April

FIBONACCI STUDIES

FIBONACCI ARCSFIBONACCI ARC

6500

00BSE Sensex 30 C

6000

5500

5000

4500

4000

3500

3000

6500 6400 6300 6200 6100 6000 5900 5800 5700 5600 5500 5400 5300 5200 5100 5000 4900 4800 4700 4600 4500 4400 4300 4200 4100 4000 3900 3800 3700 3600 3500 3400 3300 3200 3100 3000 2900 2800 2700

Oct

Nov Dec

2003

Mar Apr

May Jun

Jul

Aug Sep

Oct

Nov Dec

2004

Mar

Apr

May Jun

Jul

Aug

FIBONACCI STUDIES6500

FIBONACCI RETRACEMENTFIBONACCI RETRACEMENTS LEVELS00BSE Sensex 30 C 6500 6400 6300 6200 6100 6000 5900 5800 5700 5600 5500 5400 5300 5200 5100 5000 4900 4800 4700 4600 4500 4400 4300 4200 4100 4000 3900 3800 3700 3600 3500 3400 3300 3200 3100 3000 2900 2800 2700

6000

5500

5000

4500

4000

3500

3000

2003

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2004 Feb

Mar

Apr

May

Jun

Jul

Aug

FIBONACCI NUMBERSTREND MAY BE EXPECTED TO CHANGE AT THE END OF FIBONACCI DAYS, WEEKS,MONTHS OR YEARS2BSE Sensex 30 Co

55 TH MONTH P

13500 13000 12500 12000 11500 11000 10500 10000 9500 9000 8500 8000 7500 7000 6500 6000 5500 5000 4500 4000 3500 3000

O 1ST MONTH1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

2500 2000

W.D. GANN THEORY 24 NEVER FAILING RULES

1. Amount of capital to use. Divide your capital into 10 equal parts and never risk more than one-tenth of your capital on any one trade. 2. Use stop loss orders. Always protect a trade when you make it with a stop loss order. 3. Never overtrade This would be violating your capital rule.


4. Never let a profit run into loss . After you once have profit , raise your stop loss , so that you will have no loss of capital. 5. Do not buck the trend. Never buy or sell if you are not sure of the trend according to the chart. 6. When in doubt get out , and do not get in when in doubt.


7. Trade only in active stocks . Keep out of slow , dead ones. 8. Equal distribution of risk . Trade in 4 or 5 stocks , if possible . Avoid tying up all your capital in any one stock. 9. Never limit your orders or fix a buying or selling price . Trade at the market.


10. Do not close your trades without good reason. Follow up with a stop loss order to protect your profits. 11. Accumulate a surplus . After you have made a series of successful trades, put some money in surplus account to be used only in emergency or in times of panic. 12. Never buy just to get dividend. 13. Never average a loss . This is one of the worst mistakes a trader can make.


14. Never get out of the market just because you have lost patience or get into the market because you are anxious from waiting. 15. Avoid taking small profits and big losses. 16. Never cancel a stop loss order after you have placed it at the time you make a trade.


17. Avoid getting in and out of the market too often 18. Be just as willing to sell short as you are to buy. Let your object be to keep the trend and make money. 19. Never buy just because the price of a stock is low or sell short just because the price is high.


20. Be careful about pyramiding at the wrong time . Wait until the stock is very active and has crossed resistance levels before buying more and until it has broken out of the zone of distribution before selling more. 21.Select the stocks with small volume of shares outstanding to pyramid on the buying side and the ones with the largest volume of stock outstanding to sell short. 22. Never Hedge . If you are long on one stock and it starts to go down , do not sell another stock short to hedge it. Get out at the market take your loss and wait for another opportunity.


23. Never change your position in the market without a good reason . When you make a trade , let it be for some good reason or according to some definite plan , then do not get out without a definite indication of a change in trend. 24. Avoid increasing your trading after a long period of success or a period of profitable trades.


When you decide to make a trade be sure that you are not violating any of these 24 rules which are vital important to your success . When you close a trade with a loss , go over these rules and see which rule you have violated , then do not make the same mistake the second time. Experience and investigation will convince you of the value of these rules , and observation and study will lead you to protect and practical theory for success. One or two rules may not be relevant/applicable to Indian market.

W.D. GANN THEORY ANNIVARSARIES DATES

The market can be expected to change its trend on or about Anniversaries Dates of achieving its important historical Tops or Bottoms.

W.D. GANN THEORY ANNIVARSARIES DATES3BSE Sensex 30 Co 7000 6500

6000

22 April 1992 P

22 APRIL 1998

5500

5000

P

4500

4000

3500

3000

2500

2000

1500

1000

500

0

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

W.D. GANN THEORY ANNIVARSARIES DATES 17 MAY 2004 AND 18 MAY 20062BSE Sensex 30 Co 5750 5700 5650 5600 5550 5500 5450 5400 5350 5300 5250 5200 5150 5100 5050 5000 4950 4900 4850 4800 4750 4700 4650 4600 4550 4500 4450 4400 4350 4300 2BSE Sensex 30 Co 12900 12800 12700 12600

18 MAY 2006

12500 12400 12300 12200 12100 12000 11900 11800 11700 11600 11500 11400 11300 11200 11100 11000 10900 10800 10700 10600 10500 10400 10300 10200 10100 10000 9900 9800 9700 9600 9500 9400 9300 9200 9100 9000 8900

17 MAY 200410 11 12 13 14 17 18 19 20 21 24 25 26

4250 4200 4150

5

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1 2 June

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7

8

9

12

13

YOU SAID IT MR. GANN

1.Nothing can stop the trend . 2.Do not guess; make a trade on definite rules . 3.Human nature does not change and that is the reason history repeats and stocks act very much the same under certain conditions year after year and in the various cycles of time. 4. Time change is very important.


5. Hope can lead to nothing but losses. A wise man changes his mind , a fool never. 6. Action not delay makes money on stock market . 7. Do not buy or sell on hope or fear. 8. Learn the 3 most important factors - Time , Price and Volume.


9. Do not overtrade. 10. Successful investor have definite plans and rules and follow them . 11. It is well for any trader to remember that when he makes a trade , he can go wrong. Then how can he correct his mistake ? . By putting a stop loss. 12. The prices on stock markets are governed by Supply and demand. No matter whether the buying or selling is by public , by pools or by manipulators , prices decline when there are scarce and when there are more buyers than sellers.


13. When news are worst , it is the time to buy stocks as a Bull market begins in gloom and ends in glory with nothing but good news. 14. Remember stocks are never too high to buy as long as the trend is up and they are never too low to sell as long as the trend is down. 15. Always go with the trend and not against it. 16. Buy stocks in strong position and sell stocks in weak position .

FINALLY I WOULD LIKE TO SAY

I would like to conclude with a final statement that Technical Analysis is a powerful and complete tool in itself. With the help of technical Analysis one take investment as well as trading decision not only in Stock markets but also in Commodities, Forex, International markets and any such markets where the prices of any item is determined by the forces demand and supply in a free market economy.

THANK YOU VERY MUCH

BCA SEMINAR 040207[1].Ppt Manish Chokshi

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