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Transcript of technical analysis pres
8/7/2019 technical analysis pres
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Foundations of TechnicalAnalysis
´ Since all human actions obey laws, as
fixed as those of geometry, psychology
should be studied in geometrical form,and with mathematical objectivityµ
Spinoza Spinoza
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Foundations of TechnicalAnalysis
Three premises on which Technical Analysis
builds up
� Market action discounts everything
� Prices move in trends
� History repeats itself
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Foundations of TechnicalAnalysis
Definition of Technical Analysis
´ Technical Analysis is the organized and systematic
study of a pictorial representation (chart) of the past
price actions of a particular item with a view to
ascertaining its expected future behaviorµ.
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Foundations of TechnicalAnalysis
DO CHARTS TELL ANYTHING / EVERYTHING
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Foundations of TechnicalAnalysis
Basic tenets of theDow Theory
1) Averages discount everything
2)M
arket has three (3) trends3) Markets go through three (3) phases
4) Averages must confirm each other
5) Volume must confirm the trend
6) A trend is in effect until it gives definite signals of
reversal
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Foundations of TechnicalAnalysis
Technical Analysis addresses the simple question
´WHEN TO DOWHA T ?
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Foundations of TechnicalAnalysis
´ Investors must keep in mind that there is
a difference between a good company and
a good stockµ
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Foundations of TechnicalAnalysis
Types of charts
1) Bar chart
2) Line or Close chart
3) Japanese Candlestick chart
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Foundations of TechnicalAnalysis
EXAMPLE OF A BAR CHART
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Foundations of TechnicalAnalysis
Charting techniques
�Arithmetic scale
�Log scale
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Price Patterns� Price movement of listed securities take shape of recognizable patterns over a period of time.
� T
hese patterns have independent interpretationstowards the direction and absolute movement of the price.
�Patterns reflect accumulation or distribution and
thus reflect reversal or continuation of pricetrends.
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� Mostly occurs as a reversal pattern.
� Volumes dry up during the formation of a H &
S top / bottom.
� Volumes increase as we reach a breakout / may
not increase for a breakdown.
Price Patterns : Head &Shoulder
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Price Patterns : Head &Shoulder - examplesGMR Daily chart
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Price Patterns : Head &Shoulder - examplesIDFC Daily chart
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Price Patterns : Head &Shoulder - examplesIndusind weekly chart
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Price Patterns : Head &Shoulder - examplesKotak Bank daily chart
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� Mostly occurs as a long term reversal pattern.
� Volumes dry up during the rounding formation
but breakout happen with unprecedented surgein volumes
� Occur over a long period and to be seen on
arithmetic scale.
� Reflect long term change in fundamental /
strong operator activity.
Price Patterns :Cup /Rounding Formation
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Price Patterns :Cup /Rounding Formation Ex.SA IL Monthly chart
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Price Patterns :Cup /Rounding Formation Ex.Taneja A ero Monthly chart
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Price Patterns :Cup /Rounding Formation Ex.Grasim Daily chart
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Price Patterns :Cup /Rounding Formation Ex.Bajaj Weekly chart
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� Mostly occurs as continuation pattern.May
occur as reversal patterns too.
�Price movement within two contracting linessloping in different directions.
� Symmetrical / upward sloping / downward
sloping etc.
� Time and Volume test.
Price Patterns :Triangles
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Price Patterns : TrianglesHind Oil Daily chart
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Price Patterns : TrianglesFin Tech Daily chart
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Price Patterns : TrianglesBrigade Ent Daily chart
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� Cousins of Triangles
� Mostly occurs as continuation pattern.May
occur as reversal patterns too.
� Represent a phase in trended movement which
is equivalent to a small interval.
Price Patterns :Flags/Pennants/Rectangles
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Price Patterns :Flags/Pennants/Rectangles Ex.A BB Lt d Daily chart Rect.
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Price Patterns :Flags/Pennants/Rectangles Ex.A CC Lt d Daily chart Flag Inv
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Price Patterns :Flags/Pennants/Rectangles Ex.IDBI Lt d Daily chart Pennant
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� Mostly occurs as reversal pattern.
� Price movement records two highs at a same
level in case of double top and two lows at samelevel in case of double bottom.
� Volume confirmation is important.
Price Patterns :DoubleTops & Bottoms
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Price Patterns :Double tops &bottoms Ex.Colgate Daily chart Dou. t op
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Price Patterns :Double tops &bottoms Ex.Colgate Daily chart Dou. t op
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Price Patterns :Double tops &bottoms Ex.R Com Daily chart Dou. bott om
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� Mostly occurs as reversal pattern.
� Price movement records three highs at a same
level in case of triple top and three lows at samelevel in case of triple bottom.
� Volume confirmation is important.
Price Patterns :Triple Tops& Bottoms
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Price Patterns :Triple tops &bottoms Ex.BEML Daily chart Triple t op
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Price Patterns :Triple tops &bottoms Ex.HTMT Daily chart Triple bott om
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� Mostly occurs as reversal pattern.May occur as
continuation patterns too.
�Price movement within two contracting linessloping in same directions.
� upward sloping / downward sloping wedges.
� Volume confirmation is important.
Price Patterns :Wedges
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Price Patterns : UpwardSloping Wedge - examplesIDFC Daily chart
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Price Patterns : UpwardSloping Wedge - examplesRel Cap Daily chart
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Foundations of TechnicalAnalysis
Uptrend:
Higher tops and higher bottoms represent an uptrend
Down trend:
Falling tops and falling bottoms represent a downtrend
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Foundations of TechnicalAnalysis
Trend-lines: lines on the chart which represent
a particular trend and also signal reversals in
such trends.
A trend line is formed by joining a series of tops (if
the trend is down) or bottoms (if the trend is up) and
suggests that the ongoing trend is in force as long as
the line is not violated.
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Foundations of TechnicalAnalysis
Example of Trend Lines
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Foundations of TechnicalAnalysis - Trendlines
3 important parameters to judge a trendline:
� The length or time of existence of a trendline.
�No of touch points .
�Slope of the trendline.
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Foundations of TechnicalAnalysis
Example of Trend Lines
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Foundations of TechnicalAnalysis
Example of Trend Lines
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Foundations of TechnicalAnalysis
Example of Trend Lines
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A moving average is an indicator that show·s the average
value of a security·s price over a period of time. In technical
analysis it is calculated on a dynamic (day to day basis) and
the average value changes with change in the price of
security.
MOVING AVERAGES
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� The SimpleMoving Average
� The WeightedMoving Average
� The ExponentialMoving Average
MOVING AVERAGES
� Smoothen the underlying data
�
Represent the trend for which average is calculated
� Provide Support Resistance level
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Using moving averages
� Identifying trend reversal by price and moving average crossover
� Identifying trends by crossover of two moving averages.
�
Short periodM
A - Early entry or exit from the trendBUT
morewhipsaws and higher incidence of false & loss making trades.More
transaction costs.
�Long periodMA - Late entry and exit from the trend but lesser
whipsaws and lower transaction costs.
MOVING AVERAGES
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Example of a moving average (200 DMA : NIIT)
MOVING AVERAGES
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�Cr ossove r of th e MAs is u sed t o en t e r or exi t posi t ions
�L a t e en try and exi t but ve ry few w h ipsaws
�Good for l ong t e rm tr ading and posi t ioning
�M or e s t a bl e, m or e peace of m ind.
MOVING AVERAGES
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Cross over Signals
MOVING AVERAGES
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MOVING AVERAGE EXAMPLE
MOVING AVERAGES
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MOVING AVERAGE EXAMPLE
MOVING AVERAGES
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MOVING AVERAGES
MOVING AVERAGE EXAMPLE
F d ti f T h i l
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Foundations of TechnicalAnalysis
MOMENTUM& DIVERGENCE
F d ti f T h i l
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Foundations of TechnicalAnalysis
Divergences
F d ti f T h i l
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Foundations of TechnicalAnalysis
Divergences : -VE divergence Aptech Ltd
F d ti f T h i l
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Foundations of TechnicalAnalysis
Divergences : Nifty Daily chart
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F d ti f T h i l
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Foundations of TechnicalAnalysis
Functions of SUPPOR T:
� Level around which one can initiate long positions
� Used for putting stop loss orders.
� Levels around one which can look to square short side
trades� Violation of important support levels indicate possibility
of further decline in the stock price.
F d ti f T h i l
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Foundations of TechnicalAnalysis
Functions of RESISTANCE:
� Level around which one can initiate short positions
� Used for putting stop loss orders.
� Levels around one which can look to square long side
trades� Violation of important resistance levels indicate possibility
of further advance in the stock price.
F d ti f T h i l
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Foundations of TechnicalAnalysis
How to arrive at Supports & Resistances:
� Trendlines
� Levels on price patterns
� Moving averages� Gaps
� Consolidations
� Historical tops and bottoms
� Fibonacci Retracement levels
F d ti f T h i l
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Foundations of TechnicalAnalysis
THANK Y OU