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Technical Analysis of Equity Markets

Technical Analysis of Equity Markets. Tridib Chatterji Al Akhawayn University, Ifrane , Morocco April 2004. Objectives. Learn a little about: Technical Analysis (TA) the relationship between TA and FA types of graphs Indicators TA vocabulary Trends. What I want From You.

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Technical Analysis of Equity Markets

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  1. Technical Analysis of Equity Markets Tridib Chatterji Al Akhawayn University, Ifrane, Morocco April 2004

  2. Objectives • Learn a little about: • Technical Analysis (TA) • the relationship between TA and FA • types of graphs • Indicators • TA vocabulary • Trends

  3. What I want From You • Participation • Ask questions • Answer MY questions • Keep your eyes open • Laugh at my jokes • To have fun

  4. Sheep Let’s talk a little about…

  5. Fundamental Analysis • Ratio Analysis • Analysis of Balance Sheet • Analysis of Income Statements • SEC Form 10K • Sector Analysis • Analysis of Indices (NYSE, FTSE, NASDAQ, etc)

  6. Is that all there is? • You have identified the companies that you want to invest in. Now what?

  7. Fundamental Analysis (FA) vs. Technical Analysis (TA) • FA = WHAT • TA = WHEN • Two sides of the same coin • TA = Stock graphs, timeframes and indicators • TA = Looking at past and present stock prices to forecast future prices

  8. Graphing prices • Which would you rather see? ** Historical price from http://finance.yahoo.com

  9. Graphing prices (#2) • Which would you rather see? #2

  10. Types of Graphs (1) • Line Graph

  11. Types of Graphs (2) • OHLC (Open, High Low, Close)

  12. Types of Graphs (3) • Candlesticks

  13. Types of Graphs – Candlesticks 1 • Developed by Japanese rice traders in the 17th century: • Price action is more important than news (What vs. Why) • All news is factored into the price • Buying and selling happens through expectations and emotions • Price may not reflect actual value

  14. Types of Graphs – Candlesticks 2 • White body = Up day • Black body = Down day

  15. Types of Graphs – Candlesticks 3

  16. What do OHLC and Candlesticks Show? • Opening price • Closing price • Low of the day (LOD) • High of the day (HOD) • What’s missing?

  17. More Graphs… • What’s missing?

  18. Volume (Very Important!!)

  19. Vocabulary

  20. Indicators – Moving Averages • Simple/Exponential Moving Averages: • Building blocks for other indicators • Calculated using CLOSING prices • Smoothes a data series to spot trends • Used over various time periods (5,10,20,50,200) • SMA vs. EMA • SMA gives equal weight to ALL prices • EMA gives more weight to RECENT prices

  21. Indicators – Moving Averages (2)

  22. Indicators – Bollinger Bands • Envelope indicator • Developed by John Bollinger • Used to compare volatility and prices over a time period • 20-period SMA in the middle of the band • 20-period SMA + 2 standard deviations (Upper) • 20-period SMA - 2 standard deviations (Lower)

  23. Indicators – Bollinger Bands (2)

  24. Trends (Dow Theory) • Primary Trends: • Can last from a few months to a few years • Not usually affected by news • Secondary Trends: • Few weeks to a few months • Goes against the primary trend • Daily Fluctuations: • Affected by news • Usually unreliable • Used as a building block for longer trends

  25. Trends – Primary Trend

  26. Other indicators • Moving Average Convergence Divergence (MACD) • Relative Strength Index (RSI) • On Balance Volume (OBV) • Stochastics • Williams %R • Money Flow Index (MFI) • And many, many more….

  27. Stock Charting Site http://www.askresearch.com

  28. Questions?

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