Tech Analysis(Part1)May 2011t

7/31/2019 Tech Analysis(Part1)May 2011t

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Presented by:Juan G. Barredo

Vice President

Chief Technical Analyst

CitisecOnline.com Inc.

Technical Analysis

the Classical Approach

CITISECONLINES T O C K B R O K E R S

Presents


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Outline

Technical Analysis Classical Analysis

Trend Analysis

Trend Directions and time frames

Support and Resistance

Drawing Trendlines

Corrections and Consolidations

Principle of Magnitude and Duration

Fibonacci Retracements Area Patterns

The Trading Routine

Examine your Market Environment


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Goal: SAME

Methodology: DIFFERENT

-difference lies in theessential use of timing and

risk management.

Investing: invest into stocks foran indefinite time believing

the prospects for that

company will eventually

boost its value.

Trading: engaging into qualifiedshort term opportunities that

result into the best risk-reward potential.

The Need for Timing

Trading fundamentally sound companies

potentially offer considerably higher rates of

return than long term investing, but it engenders

more preparatory work


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Technical Analysis

Technical Analysisis the study of Market Action, primarily throughthe use of Charts; for the purpose of forecasting future price Trends.

-- John J. Murphy Technical Analysis of the Financial Markets

What is it?

Price

Action

Study

Charts

Spot

Trends


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Groundings of TA

The market price tells you everything you need to know abouta stocks expectations. Whether the reason stemmed fromlogic or emotion, from careful assessment or speculation ithas all been factored in.

Price discounts everything

An object in motion tends to stay in motion; while an object atrest tends to stay at rest.

Prices move in trends

People will tend to react in similar fashion to certain kinds ofstimuli, thus grooming the repetitive aspect of price activity.

History repeats itself


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Graphic View of Price


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Volume the 3rd Dimension

Volume - measures theintensity participation of

the crowd

It takes volume for a

stock to rise; but prices

can fall of its own weight Advancing prices should

be accompanied by rising

or good volume. Without

it, advances may be

limited in duration

Volume bursts or dry

ups may lead to swing

highs and swing lows

Volume Bars


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Classical Analysis: Trends

Trends are durable swings in market condition; they last a considerableamount of time backed up by market forces (Demand & Supply)

Markets may take one of three general directions orTrends:Up, Down or Sideways

Trends are gauged or followed by the use of a Trendline a break of atrendline may signal a reversal or pause in trend

UP TRENDHigher-Highs and Higher-Lows

DOWN TRENDLower-Highs and Lower-Lows

SIDEWAYS TRENDRange bound Highs and Lows

also known as Consolidations

Trendlines drawn by connecting

major lowsTrendlines drawn by connecting

major highs


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Support and Resistance

Support that area under a price market where aconcentrated amount of demand or buying

interest has come to overpower selling pressure.

This area is usually depicted by price bottoms or

Up Trendlines.

Resistance - frames itself as that area over aprice market where concentrated selling pressure

prevents any further advance in price.

This area is usually depicted by price tops or

Down Trendlines.

Note: A break of any of the two should see acorresponding move in the direction of the break. And sometimes when support or resistancebreak they maychange roles where Supportbecomes Resistance or the inverse.

S

S

S

R

R

R

R

R

R

S

S

S


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Support and ResistanceNote:

Up Trends showsupport in control ofprices buy intopullbacks to this zone

Down Trends showresistance in control ofprices sell in rallies tothis zone

Sideward Trends

force prices to cascadebetween support andresistance rangetrade this boundary

Volume introduces itself along

with a rise in demand


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Trends in Time

Short Term = 3 Weeks to 3 Months

Medium Term = 3 Months to 9 Months

Long Term = 9-12 Months +


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Drawing Trendlines

Process of action:1. Start with what you have

connect clear support

or resistance points

2. After noticing a trendline

breakAct! (Sell or Buy)

3. If a new trend develops

redraw new opposing

trendline

4. On a false up trendline

break, a new trendline

must be outlined once

prices show higher-highs

(lower-lows in downtrends)

5. Try to ignore major highs

and lows usually seen off

tops and bottoms

second tops an bottoms

are better starting points

for trendlines

New shorter term trends may

start as soon as successful

double support tests or

higher-lows are made

This trendline

validated by

the breach of

previous high


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Corrections and Consolidations

It takes Time (Duration) to move a Price a certain distance (Magnitude)

---Any exaggerated movement in this relationship will be paid for by an adjustment

through Price (Correction) or Time (Consolidation).

The principle of Magnitude and Duration

Time

(Duration)

Price

(Magn

itude)

(1) Correction in Time

(2) Correction in Price

50

45

40

35

30

25

20


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Corrections in Action

Corrections in price

Corrections in time


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Fibonacci Retracements

The Golden Ratio of 61.8% Leonardo Pisano (1200), more

popularly know as Fibonacci

Natural relationship of expansion

and contraction to maintain balance

Fibonacci series of numbers

(0,1,1,2,3,5,8,13, 21,34,55,)

% Down % Up

38.2% 34 61.8%

38.2% 55 61.8%

38.2% 89 61.8%

38.2% 144 61.8%

38.2% 233 61.8%

Phi = 1.618


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Fibonacci in Action

Corrections within up trends

that find support after makingpullbacks of 38.2% to 61.8%may be bought

Note: It isnt as important to buy as

cheap as possible as it is to buy atthe right time


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Area Pattern Consolidations

Consolidations are depicted by sidewaysmoving markets

They enter into a meditative pause to fix

price swing exaggeration by winding up

between support and resistance

Market Exaggeration:Overbought an upward swing moving too

fast too soon; offering ripeness for profit

taking (reaction)Oversold a downward swing moving too

fast too soon; offering grounds for bargainhunting (rally)

Push out of a consolidation/pattern:Breakout a condition where prices shove

themselves above a patterns Resistance

Breakdown if prices slip below Support


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Studying Patterns

Examine a patterns

SHAPECan give clues to its eventual

directional bias. Watch actions

of demand versus supply and

look for partiality.

SIZECan measure likely price

targets after a breakout

scenario.

Note:Vertical size of pattern =Minimum size of potential moveLonger the horizontal width =the greater the durability of the

swing


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Area Patterns: Continuations

Ascending

Descending

Symmetrical

Rectangle Flags & Pennants

Wedges


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Area Patterns: Reversals

Double Tops

Broadening

Head & Shoulders

Rounding Tops Cup and Handle

One Day Reversals (ODR)


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Sample Patterns


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Breakout Targets

TRIANGLE230- 80 = 150

Breakout point: 170

Thus: 170 + 150 = 320

RECTANGLE325 - 210 = 115

Breakout point: 325

Thus: 325 + 115 = 440


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The Trading Routine

Creating a Trading PlanWhen choosing a potential stock candidate (after screening it

fundamentally), it is always good practice to technicallyevaluate how much upside one would have compared with itsdownside.

1) Looking for a Justified Entry

2) Establishing your Exit

3) Estimating your Technical Risk-Reward


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A Justified Entry (for up trends)

Breakout swings from

Consolidations

Breakout Moves

Support rebounds from Up

Trendlines or Range lows

Support Bounce


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A Justified Entry

Looking for Price TargetsIn order to choose the more promising alternative it is always

good practice to technically evaluate how much upside onewould have

1) Trendline Projection

2) Range in a Price Channel

3) Height of its current Area Pattern

4) Distance to its next major Resistance / Support


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Looking for Price Targets

A

B

C

D


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A break below Trendlines

Up Trendline Break

Breakdown from Consolidations

Breakdown Conditions

Establish your Exit Strategy


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Price Targets and TriggeredYou must develop the ability to patiently stay with winning

trades to allow them to create the profits you expected if notmore take some profits or sell on these circumstances:

1) Once price targets are hit

2) Take windfall profits on Overbought rushes

when momentum runs dry

3) Once price stops are hit


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Price StopsWhen holding a position through a trend it would be prudent tofollow it with a protective tool called a Price Stop. Once this

price is violated, one must liquidate or lighten current positions

to safeguard the value of positions.

1) Trendline (or Moving Average) breaks

2) Consolidation/ Pattern lows

3) Trailing stops

Last reaction lows

For runners previous day lows or 10-day MA


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Price Stop for runners:

Day Lows (for super fast moves)

16-day Moving Average


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Assessing your Risk-Reward

Evaluate your prospectsA key component in being a successful trader is to determine

your risk versus reward level and use that optimum ratio toguide your investment decisions.

1) Estimate your upsides and downsides thenpick out Risk-Reward opportunities of 1:3+

2) Remember selling too soon may inhibit your

ratio keep yourself with the trend

3) You now have a trade plan be disciplined

enough to follow it!


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Examine your Market


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Examine your Market

www.stockcharts.com Candleglance Group

20-day MA Short Term Trend | 50-Period MA Medium Term Trend


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What we have learned

1. Technical Analysis

2. Spotting and following trends

3. Corrections and

Consolidations are necessary

breathing spots

4. Establish a trading plan by

knowing your upsides and

downsides5. Examine your market

surroundings and retool your

strategy

Knowledge born from actual

experience is the answer to why

one profits; lack of it is the reason

one loses

- Gerald M. Loeb

Tech Analysis(Part1)May 2011t

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