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Technical Analysis

Technical Analysis. What is technical Analysis: Try to identify trend changes at an early stage, and to maintain an investment or trading posture, until the evidence shows or proves that trend has changed

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Technical Analysis

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  1. Technical Analysis

  2. What is technical Analysis: • Try to identify trend changes at an early stage, and to maintain an investment or trading posture, until the evidence shows or proves that trend has changed • Technical Analysis can help on identifying the direction of the trend, but there is no method of consistently forecasting its magnitude.

  3. Different Types of Charts and Their use for technical Analysis: Line Charts: •  A graph of data that is mapped by a series of lines. Line charts show changes in data or categories of data over time and can be used to document trends. • High, opening and lows are ignored only the closing prices are considered

  4. Benefits of using “Line Chart” • Why to use closing price

  5. Bar Chart: • A bar chart is a graphic representation of an issue’s high, low, close and open prices. • Prices appear on the vertical axis. Time is on the horizontal axis. • For each day, a line is drawn to connect the high and the low. Closes are represented by ticks to the right of the high-low bar; opens are represented by ticks to the left of the bar.

  6. Candlestick Charts: • A candlestick (or candle) chart clearly displays the relationship between an issue’s current-day opening and closing prices. • A line is drawn to connect each day’s high price with each day’s low price and a rectangle (called the candle body) is drawn over the bar. • A solid black body indicates that the close is lower than the open. • A solid white body indicates that the close is higher than the open.

  7. The Market Cycle Model and Basic Trend Identification TYPES OF TRENDS • SHORT TERM TRENDS • DURATION IS 3- 6 WEEKS • INTERMEDIATE TRENDS • DURATION IS FROM 6 WEEKS TO 9 MONTHS

  8. PRIMARY TRENDS • DURATION OF THESE TRENDS • BULL TRENDS VS BEARISH TRENDS • WHY DO INVESTOR VALUE MORE TO THIS TREND • INVESTORS SHOULD KNOW PRIMARY TREND • SECULAR TRENDS • DURATION OF THESE TRENDS • WHY TO USE THESE TRENDS • USE FOR SHORT TERM INVESTOR

  9. Moving Average • What is moving average? • Moving average is an indicator used in technical analysis that shows a stock's average price over a certain period of time. • Generally moving average is plotted on a graph alongside the stock's price. • It is good to show a stock's "momentum" and it's propensity to move above or below a point. • There can be different type of moving average • The moving average curve is a much smoother version of the price curve because it eliminates all of the sharp bumps that are caused by short deviations.

  10. Moving Average • How do you find moving average? • For any given moment in time, the moving average is the average of the stock prices over the past x days, where x is the period that you are measuring Example: IF the stock price on Monday was $3, the price on Tuesday was $5, and the price on Wednesday was $7, What will be the three-day moving average on Thursday? Answer: 3 day MA = 3+5+7 / 3 = $5

  11. Moving Average • “Crossover" principle of moving averages • The "crossover" principle of moving averages is very important to investing. • Whenever a stock price goes below its moving average, that means that it has downward momentum and it is not a good buy. • If you have the stock, you should think about selling it • Whenever a stock price goes above its moving average, that means that it has upward momentum and it is a good buy

  12. The stock was a good buy between November 2005 and January 2006, but not between February 2006 and March 2006, according to the moving average.

  13. Bollinger Bands • Bollinger Bands are plotted at standard deviation levels above and below a moving average. • When displaying Bollinger Bands you are required to select the number of periods in the bands and the number of standard deviations between the bands and the moving average. • Default values of "20" for the number of periods, "simple" for the moving average method, and "2" deviations.

  14. Bollinger Bands • Because the spacing between Bollinger Bands is based on the standard deviation of the security, the bands widen when the security becomes more volatile, and contract when the security becomes less volatile.

  15. Bollinger Bands Characteristics of Bollinger Bands. • Sharp price changes tend to occur after the bands tighten, as volatility lessens. • When prices move outside the bands, a continuation of the trend is implied. • Bottoms/tops made outside the bands followed by bottoms/tops made inside the bands call for reversals in the trend. • A move that originates at one band tends to go all the way to the other band. This observation is useful when projecting price targets.

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