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Introduction to Technical Analysis

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What to Expect?
Not even T of Technical Analysis (3 Hours is too less a time to expect anything w.r.t Technical Analysis, theres too much out there) Expect just an introduction to what is technical analysis Get yourself convinced by end of the presentation that technical analysis is good enough to buy and sell stocks

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What Is Technical Analysis in two words?

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Price & volume


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What wiki says? Technical analysis is a security analysis discipline for forecasting the future direction of prices through the study of past market data, primarily price and volume.

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Different Kind of Charts used:


Line charts Bar charts

Candlestics

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Line Charts

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Bar Charts

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Candlesticks

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An Example

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How to use Candle Sticks?

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Is That all?? No

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Dow Theory
Market Discounts everything

The 3 Trends -> Primary Trends -> Secondary Trends -> Minor Trends

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Primary Trends and Secondary Trends

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Continued
Primary Trends : They run for years

Secondary Trends : Few weeks to months 1/3 , 50% , 2/3 retracements Minor Trends : Day to day moments which are of not importance to dow theory.

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Continued
The Bull market -> Accumulation -> Public Participation phase -> Excess The Bear Market -> Distribution -> Public Participation phase -> Panic
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Continued
The 2 Averages must confirm -> Industrial Average -> Rail Average

Volumes goes with the trend

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Continued
A trend be assumed to continue in effect until such time as its reversal has been definitely signaled

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Some Examples

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Support and Resistance

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Role Reversals
Support becomes Resistance and vise versa

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Real world Example

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Chart Patterns
Reversal Patterns Ex: Head and Shoulders, Rounding tops and bottoms, Triangles, Rectangles, Double and triple tops and bottoms, diamonds, wedges etc Continuation Patterns Pennants and flags etc

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Head and Shoulders

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Double tops and bottoms

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Triangles

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Flags and Pennants

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Some Examples

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Bullish Flag

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Falling wedge

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Right Angles Triangle

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Head and Shoulders breakout

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Head and Shoulder formation

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Triangular Consolidation breakout

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Averages
Simple moving average (20 DMA, 50 DMA, 100DMA) Exponential moving average(20 EMA, 50 EMA) Triangular moving average Volume adjusted moving average Weighted moving average

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Simple Moving Average


DAY 1 2 3 4 5 6 7 PRICE 10 11 12 13 14 15 16 33 36 39 42 45 11 12 13 14 15 SUM OF 3 DAYS 3rd COLUMN / 3

8
9 10

17
18 19

48
51 54

16
17 18

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Exponential Moving Average


Exponential Percentage = 2 ---------------------------Time Periods + 1

Ex: for 3 day EMA,


E % = 2/(3 + 1) E % = 2/4 = 0.5

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3 DAY EMA
A DAY 1 B PRICE 10 C PRICE * 0.5 D YESTERDAY E * 0.5 E C+D 10.000

2
3 4 5 6 7

11
12 13 14 15 16

5.5
6 6.5 7 7.5 8

5
5.25 5.625 6.062 6.531 7.015

10.500
11.250 12.125 13.062 14.031 15.015

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Moving Averages as Support

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Use of major moving average as support

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Indicators
Leading Indicators Ex: RSI, CCI, Stochastic, etc Lagging Indicators Ex: MACD, moving averages etc

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Bollinger Bands
Shown in 3 bands Middle Band = SMA Upper Band = Middle band + 2 Standard Deviations Lower Band = Middle band 2 Standard Deviations

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RSI
Relative Strength Index Usage -> Tops and Bottoms (70 and 30) -> Chart Formations ->Support and Resistance -> Divergance

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Calculation
100 - (100 / (1 + (U/D))) U -> Upward Price Change D -> Downward Price Change Ex : 3 day RSI

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Continued
A Closing Price 10 11 1 0 B Upward Price Change C Smoothed B D Down word Price Change E Smoothed D

9
13 10 14

0
4 0 4 1.66 1.33 2.66

2
0 3 0 0.66 1.33 1

C
C 1.66 1.33 2.66

E
E 0.66 1.33 1

F
C/F 2.51 1 2.66

G
F+1 3.51 2 3.66

H
100/G 28.5 50 27.3

I = RSI
100 - H 71.5 50 72.7

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Some Examples

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MACD
Moving Average Convergence and Divergence Calculation 12 EMA 16 EMA Usage -> Crossovers -> Overbought/Oversold -> Divergence
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Examples

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Other Technical Indicators


Absolute Breadth Index Accumulation/Distribution Line Advance/Decline Line and Ratio Arms Index (TRIN) AROON Chalkin Oscillator CCI KST OBV (There are 1000s of indicators )
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Pivot Points
PP = (H + L + C) / 3 R1 = (2*PP) - L R2 = PP + (H - L) R3 = H + 2*(PP-L) S1 = (2*PP) - H S2 = PP - (H - L) S3 = L - 2*(H - PP)
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Other Important Things not Discussed


Elliott Wave Theory Fibonacci Studies Gann angles

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Q&A
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Thank You

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