Technical Analysis Applied
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Transcript of Technical Analysis Applied
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Technical Analysis applied
Standard Online Share Trading
Riette Kotze
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What is technical analysis? Study charts
Add technical indicators to:
Determine the trend and price movement*
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Benefits of technical analysis Determine what is most probable to happen in the future: Trend and price
Know when to buy and sell
Capital protection
Maximize returns
Eliminate emotions and thoughts
Put the odds in your favour
Universal principles:Applied to any market place.
Applied to any instrument e.g. shares, warrants, CFDs
Applies to end of day or intraday data* Live data: Easy Trader, R99.00 per
month.
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Factors that influence intent Investment size
Risk profile
Market behaviour
Goals:
% growth p.a. or p.m.
index barometer outperform the index
Invest and or trade
Instrument and period selection
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Critical Components Selection:
Instrument*
company
Timing
One trending indicator to determine long-, medium and short term trend e.g.-
One trading indicator to determine price movement e.g. Stochastic
Above will be determined by intent
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Investing
Selection: Required: Long term upward trend
Shares in sectors that outperform the index and is the best performer in the sector
over at least 3 years.
How?
Compare all the sectors to the index, using Relative Strength. RS above 1: 1st
outperformed 2nd
Compare all the shares in the sector to the sector, to find the best performer
consistently over 3 years.Timing:
Buy and hold 3 years+ or as long as the long term trend is up.
Entry: Long term trend must be up, low on price on trading indicator or previous
time frame. Exit: End of long term trend.
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Measuring out- and under performance
Relative Strength:
Compare: two instruments.
Select a graph
Select amount of data in line with intent
Select a second graph: Enter the short code into the second window below thegraph on the left hand side
Select Rel Str from dropdown stats window
Interpretation:
Above 1: 1st outperform 2nd Below 1: 1st underperform to 2nd
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Where to find charts
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List of indices
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Relative strength of AUTM against
ALSH
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Shares in sector
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Shares in sector
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Shares selected
News
Results
Dividends
Announcements
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Home and Market info: News
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Tools: Company info: Company
results and next results due
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Tools: Company info: Dividends
payable and dividends paid
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Home: Special announcements
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Trading
Selection:
Derivatives:
Derived from an underlying instrument.
Instruments: warrants, SSFs, CFDs
Differences between shares and derivatives
Trending or trading underlying*
Volatility and trading range* (H-L: daily, weekly or monthly)
Timing:
Short term trading: Buying and selling frequently
Entry: Short term trend align with medium- and long term trend, low on price.
Exit: Short term price or trend.
Used for either or:
Hedge*, Speculate or capital conversion
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Help: Online courses
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Help: Downloads
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Market info: Market movements
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Speculation
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Hedging
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Average daily trading range: H-L
R2.00
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Average weekly trading range: H-L
R5.00
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Average monthly trading range:
H-L R12.00
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Chart options
Line chart: High, low or close
Bar chart or OHLC
Candlesticks
Log in
Tools: Price charts: Interactive charts
Select a chart
Select a chart option from the OHLC dropdown menu
Select a time frame: Daily, weekly or monthly
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Line chart
High
Low
Close: Most important
Select a chart
Select high or low or close from the OHLC dropdown menu
Upward trend: Higher highs, lows and closing prices.
Downward trend: Lower highs, lows and closing prices.
Look whether exceeding previous highs or lows, especially extreme highs and lows.
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Bar Charts or OHLC (open, high, low, close)
Open
High
Low
Close
Indicate trend continuation or reversal.
Position of close:
+ close above open and close near high
- close below open and close near low
Change in average trading range
ATR instrument and intent specific stop loss placement
Gaps
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Bar Chart Formation
Change in range:
Spikes:
Upward trend: Close closer to high
Downward trend: Close closer to low
Key reversal day:
Top key reversal day:
open above previous close
higher high
close near low or lower.
Bottom key reversal day:
open below previous close
lower low
close near high or higher
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Bar Chart Formation
Uncommon gaps:
Exhaustion gaps:
Occurs towards the end of a trend
Usually with low volume
Indicates very strong selling or buying pressure
Might or might not be filled
Break-away gaps:
Beginning of new trend
Followed by bigger trading range, as a result of increased volatility & volume
Unlikely to be filled
Run-away gaps:
In an existing trend
Trend continuation
Might or might not be filled
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Japanese Candlesticks
Body: Difference between O and C
Shadows: H and L
Open, close, high and low.
Indicate change or continuation in direction
Body colour:
+ Blue candlestick: buying pressure > selling pressure and close > open
- Red candlestick: selling pressure > buying pressure and open > close
Long bodies indicate strength
Long shadows indicate uncertainty and can result in a change in direction.
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Reversal signals
Changes in:
Colour
Length of the bar or trading range:
Length of the body
Length of the shadows
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Bottom reversal patterns
Engulfing white or Bullish engulfing:
Strongest bottom reversal signal.
After a downtrend
Can result in a trend change.
Red candle body followed by a blue candle body.
Blue candle body engulfs previous red candle body:
Blue candle opens at or below previous close of red candle.
Blue candle closes at or above previous open of red candle.
Short or no shadows.
The more previous candle bodies the blue candle body engulfs, the stronger the
signal.
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Bottom reversal pattern
Engulfing white
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Bottom reversal pattern
Engulfing white
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Bottom reversal patterns
Piercing Pattern:
Weaker than Engulfing white.
Red candle body followed by a blue candle body.
Blue candle opens at or below previous low of red candle.
Blue candle closes at least halfway up the body of previous red candle , between
half way and the opening price of the previous red candle.
In a falling market
If blue candle doesnt close at least half way in the previous red body, seen as a
bearish continuation pattern, depending on close e.g. in-neck line, on-neck line or
thrusting pattern.
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Bottom reversal pattern
Piercing pattern
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Piercing pattern
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Bottom reversal patterns
Bullish counter attack
Weaker signal.
Red candle body followed by a blue candle body.
Blue candle opens below previous close of red candle.
Blue candle closes at close of previous red candle.
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Bottom reversal pattern
Bullish counter attack
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B l
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Bottom reversal pattern
Bullish counter attack
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Bottom reversal pattern
Hammer
Small body at the upper end of the trading range
lower shadow at least twice the length of the body (umbrella line)
small or no upper shadow.
The longer the lower shadow, the stronger the degree of failure.
Bullish emerges during a downtrend
A signal that the downtrend should end
Body can be White/hollow/ empty/ blue or black/filled/ red
Power line: White/ hollow/ empty/ blue hammer
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B tt l tt
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Bottom reversal pattern
Hammer
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B tt l tt
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Bottom reversal pattern
Hammer
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Bottom reversal pattern
Inverted Hammer
Upper shadow at least twice the length of the body
no or a small lower shadow.
Bullish emergence after a decline.
Small body at the lower end of the range
Body black/blue or white/red
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B tt l tt
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Bottom reversal pattern
Inverted Hammer
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Bottom reversal pattern
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Bottom reversal pattern
Inverted Hammer
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Bottom reversal pattern
Tweezer bottoms
Lowest lows of 2 or more candles, the same.
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Bottom reversal pattern
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Bottom reversal pattern
Tweezer bottoms
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Bottom reversal pattern
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Bottom reversal pattern
Tweezer bottoms
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Top reversal patterns
Engulfing black or Bearish engulfing
Blue candle followed by red candle:
Red candle opens at or above previous close of blue candle.
Red candle closes at or below previous open of blue candle.
After an uptrend
Strongest top reversal signal.
Can result in a trend change.
Short or no shadows.
The more previous candle bodies the red candle body engulfs, the stronger the
signal.
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Top reversal pattern
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Top reversal pattern
Engulfing Black
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Top reversal pattern
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Top reversal pattern
Engulfing Black
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Top reversal pattern
Dark cloud cover
Blue candle followed by red candle:
Red candle opens at or above previous close of blue candle.
Red candle closes at least halfway down the previous body of the blue candle, between half way and the previous blue candles opening price.
After an uptrend
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Top reversal pattern
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Top reversal pattern
Dark cloud cover
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Top reversal pattern
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Top reversal pattern
Dark cloud cover
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Top reversal pattern
Bearish counter attack
Blue candle followed by red candle:
Red candle opens above previous close of blue candle.
Red candle closes at previous close of blue candle.
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Top reversal pattern
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Top reversal pattern
Bearish counter attack
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Top reversal pattern
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Top reversal pattern
Bearish counter attack
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T l
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Top reversal pattern
Shooting star
Bullish failure after a rally
The longer the upper shadow, the stronger the degree of failure.
Small body at the lower end of the range upper shadow at least 2 x body length
small or no top
Body black/blue or white/red
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Top reversal pattern
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Top reversal pattern
Shooting Star
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Top reversal pattern
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op e e sa patte
Shooting Star
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Top reversal pattern
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Top reversal pattern
Hanging man
Body White/blue or black/red
Lower shadow at least 2 - 3 x body length (umbrella line)
no / small upper shadow Body at the upper end of the trading range
Bearish emergence
After an extended rally, preferably an all time high.
Needs confirmation: next candle to open and or close beneath hanging mans
body.
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Top reversal pattern
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p p
Hanging Man
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Top reversal pattern
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p p
Hanging Man
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Top reversal pattern
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Top reversal pattern
Tweezer tops
Highest high out of 2 or more candles the same.
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Top reversal pattern
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p p
Tweezer Tops
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Top reversal pattern
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Tweezer Tops
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Compilation of a strategy: Timing
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p gy g
Trending indicator:
to establish the:
Long term trend
Medium term trend Short term trend
Up
Down
Sideways
For entry and exit answers
Trading indicator:
To establish price movement
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MAC-D: Moving Average Convergence Divergence
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g g g g
Select the graph
Select MACD from one of the stats drop down menus
Period selection is extremely important.
Long term trend SMA 12 and 200+ daily (just change red 26 to 200) or 12 and 26monthly
Medium term trend SMA 12 and 90 daily (just change red 26 to 90) or 12 and 26
weekly
Short term trend SMA 12 and 26 daily(default)
Very short term trend SMA 3 and 8 daily
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MAC-D: Moving Average Convergence Divergence
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g g g g
Interpretation:
Investors: MACD 12 and 200 up through 0, beginning of an upward trend. MACD
12 and 200 down through 0, beginning of a downward trend.
MACD 12 & 26 monthly or weekly crossovers
Traders: Crossovers:
Black line or MACD up through blue line or signal line, beginning of an upward
trend, end of a downward trend, over sold position.
Black line or MACD down through blue line or signal line, beginning of a
downward trend, end of an upward trend, over bought position.
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Trading Indicator
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Price movement
Leading indicator
Entry Re-entry
Exit
Re-exit
Adding
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Stochastic
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Momentum oscillator
High-low range over x number of days and the relationship of the close to the low
over that period.
%K: Difference between last close and lowest low over a period
%D: High-low ratio oscillator
.
Sell: %D Stochastic breaks down through %K or red down through blue.
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Stochastic
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Select graph
Select Stochastic from dropdown stats window
Not necessary to change parameters.
Interpretation: Buying opportunity going up if red line goes up through blue line. Opportunity to
get out of derivative position making money going down or in to make money
going up.
Selling opportunity if red line goes down through blue line, sign that price is
coming down not necessarily trend. Opportunity to get out of derivative positionmaking money going up or in to make money going down.
Trade in the direction of the trend.
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A step by step approach
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International Indices: DJ-IND
Long term trend
Medium term trend
Short term trend Price movement
Compare DJ-IND with DJ-TRAN
DJ-INDALSH
Sector
Share
Index: ALSH long-, medium-, short term trend and price movement
Sectors: Relative strength against index to find outperformers or underperformersand long-, medium- , short term trend and price movement.
Shares: Relative strength against sector to find outperformers or underperformers,
as well as long-, medium-, short term trend, as well as price movement.
OR Selection based on how much & how fast it moves.
Timing: MAC-D and Stochastic Long-, medium and short term
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Strategy Summary
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DJ-IND trend & price movement
ALSH Index trend & price movement
Sector selection: Outperforming index using RS
Shares selection: Outperforming sector using RS
Timing:
DJ-INDALSH
Sector
Share
Graph option e.g. candlestick chart
Trending indicator: e.g. MAC-D for trend
Trading Indicator: e.g. Stochastic for entry, re-entry, exit , re-exit or adding to
position
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Summary
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Relative Strength Measure under- and out performance.
Selector choose between two instruments.
Compare two instruments.
RS above 1: 1st outperformed 2nd
RS going up the page: 1st increasingly performing better in comparison to 2nd
MAC-D Trend following momentum indicator
Relationship between 2 MAs of a price
Buy: MACD (black line) up through MA (blue line)
Sell: MACD (black line) down through MA (blue line)Long term trend: monthly default parameters (12 & 26) or hourly
Medium term: weekly default parameters (12 & 26) or 30 minute chart
Short term: daily default parameters (12 & 26) or 15 minute chart
Very short term trend: daily data and change 12 & 26 to 3 & 8 or 5 minute chart
Intraday: Use default parameters: Long term trend
Stochastic Upward movement: closed near high
Downward movement: closed near low
Buy: %D Stochastic (red line) breaks up through %K Stochastic (blue line)
Sell: %D Stochastic (red line) breaks down through %K Stochastic (blue line)
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Summary
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Engulfing white
Piercing pattern
Bullish Counter Attack
Hammer
Inverted hammer
Tweezer bottoms
Engulfing black
Dark cloud cover
Bearish counter attack
Shooting star
Hanging man
Tweezer top
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81Copy Right
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The material supplied by Mariette Kotze to SBG Securities (Pty) Ltd. is protected by law and may not be copied,reproduced, printed or otherwise distributed, whether in part or in full. The context of the content may not be
construed in any way. The material is intended for personal or private use only.