TECHNICAL ANALYSIS

Introduction
Technical analysis is the attempt to forecast
stock prices on the basis of market-derived
data.
Technicians (also known as quantitative
analysts or chartists) usually look at price,
volume and psychological indicators over
time.
They are looking for trends and patterns in the
data that indicate future price movements.

Assumptions
The market discounts everything
Prices move in trends
History tends to repeat itself

The Bar Chart

The Bar Chart

Some of the most
popular type of
charts
Advantage is that
it show the high,
low, open and
close for each day

Line Chart

Candle Stick Charting

Candle Stick Charting

Green is an example
of a bullish pattern,
the stock opened at
(or near) its low and
closed near its high
Red is an example of
a bearish pattern.
The stock opened at
(or near) its high and
dropped substantially
to close near its low

Point and Figure Chart

Somewhat rare
Plots day-to-day increases and declines in
price.
A rising stack of XXXXs represents increases
A rising stack of OOOOs represents decreases.
Typically used for intraday charting
If used for multi-day study, only closing prices
will be used

Point and Figure Chart

Trends
The meaning of trend in finance isn't all that different from the
general definition of the term - a trend is really nothing more
than the general direction.

A trend represents a consistent change in prices (i.e. a change

in investors expectations)
A trendline is a simple charting technique that adds a line to a
chart to represent the trend in the market or a stock.

Dow Theory
Assumptions:
1) No single individual can or buyer can influence the

markets primary trend.

2) Market discounts everything.
3) The theory is not infallible.

Dow Theory
Dow Theory the grandfather of trend analysis is the Dow Theory, named
after its creator, Charles Dow (who established The Wall Street Journal).
Many of todays more technically sophisticated methods are essentially
variants of Dows approach. The Dow Theory posits three forces
simultaneously affecting stock price:
The primary trend is the long-term movement of prices, lasting from
several months to several years.
Secondary or intermediate trends are caused by short-term deviation of
prices from the underlying trend line. These deviations are eliminated
via corrections when prices revert back to trend values.
Tertiary or minor trends are daily fluctuations of little importance.

In Dow theory, the primary trend is the major trend of the

market, which makes it the most important one to determine.

The primary trend will also impact the secondary and

minor trends within the market.

The primary trend will also impact the secondary and

minor trends within the market.
Dow determined that a primary trend will generally last
between one and three years but could vary in some instances.

For example, if in an uptrend the price closes below the

low of a previously established trough, it could be a sign
that the market is headed lower, and not higher.
Regardless of trend length, the primary trend remains in
effect until there is a confirmed reversal.

In Dow theory, a primary trend is the main direction in

which the market is moving.
Conversely, a secondary trend moves in the opposite
direction of the primary trend, or as a correction to the
primary trend.
For example, an upward primary trend will be composed
of secondary downward trends.

This is the movement from a consecutively higher high

to a consecutively lower high. In a primary downward
trend the secondary trend will be an upward move, or a
rally.
This is the movement from a consecutively lower low to
a consecutively higher low.

Below is an illustration of a secondary trend within a

primary uptrend.

The last of the three trend types in Dow theory is the

minor trend, which is defined as a market movement
lasting less than three weeks.

The minor trend is generally the corrective moves within

a secondary move, or those moves that go against the
direction of the secondary trend.
Due to its short-term nature and the longer-term focus of
Dow theory, the minor trend is not of major concern to
Dow theory followers.
But this doesn't mean it is completely irrelevant; the
minor trend is watched with the large picture in mind, as
these short-term price movements are a part of both the
primary and secondary trends.

Types of Trend
Uptrends

Types of Trend
Downtrend

Types of Trend
Sideways Trend

Support and Resistance

Support level is a price level where the price tends to find

support as it is going down

Support and Resistance

Resistance Level is a price level where the price tends to

find resistance as it is going up

Importance of Support and Resistance

Support and resistance analysis is an important part

of trends because it can be used to make trading
decisions and identify when a trend is reversing

Aware: Support and Resistance levels

Support and Resistance levels are highly

volatile

Traders should not buy and sell directly at

these points as there may be breakout also

Head and Shoulders

This is one of the very popular and reliable chart patterns in

technical analysis. It is a reversal chart pattern that when formed
signals that the security is likely to move against the previous
trend.

Cup and Handle

A cup and handle chart is a bullish continuation pattern in

which the upward trend has not stopped but has only
paused for some time and continue in an upward direction
once the pattern is confirmed. This price pattern forms what
looks like a cup which is preceded by an upward trend the
handle follow the cup formation and is formed by a
generally downward sideways movement in the security
price.

Double Tops and Bottoms

This chart pattern is another well-knows pattern that signals a

trend reversal it is considered to be one of the most reliable and is
commonly used these pattern are formed after a sustained trend
and signal to chartists that the trends is about to reverse the pattern
is created when a price movement test support or resistance levels
twice and is unable to break through the price movement has twice
tried to move above a certain price level after two unsuccessful at
pushing the price higher the trend reverses and the price heads
lower in the case of a double bottom the price movement has tried
to go lower twice .

Triangles

Triangles are some of the most well-known chart pattern used in

technical analysis symmetrical triangle ascending and descending
triangle are the three types of triangles which vary in the way they
are constructed and what they imply these chart pattern are
considered to last anywhere from a forth night to several months

Flag and Pennant

When there is a sharp price movement followed by a generally

sideways price movement these two short term chart pattern are the
continuation pattern that are formed this pattern is then complete
upon another sharp price movement in same direction as the move
that started the trend the pattern are generally thought to last from
one to three weeks.

Wedge

The wedge chart pattern can be either a continuation or reversal

pattern it is similar to asymmetrical triangle generally shows a
sideways movement the other difference is that wedge tend to form
over longer period usually between three and six months.

Triple Tops and Bottoms.

Another type of reversal chart pattern I chart analysis triple tops and
triple bottoms these act in a similar fashion as head and shoulder and
double tops and bottoms but are not equally prevalent in charts these
two chart patterns are formed when the price movement test a level
of support or resistance three times and is unable to break through
this signals a reversal of the prior trend triple tops and bottom can
lead to confusion during the formation of the pattern because they
can look similar to other chart pattern after the first two support test
are formed in the price movement .

Rounding Bottom

A rounding bottom also referred to as a saucer bottom is a long term

reversal pattern which signals a shift from a downward trend to an
upward trend this pattern is traditionally thought to last anywhere
from several months to several years .
A rounding bottom chart pattern looks similar to a cup and handle
pattern but without the long term nature of this pattern and the lack
of a confirmation trigger such as the handle in the cup and make it a
difficult pattern to trade.